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EMCORE Corporation (NASDAQ:EMKR)

F4Q08 Earnings Call

December 11, 2008 9:00 am ET

Executives

Victor Allgeier - TTC Group

John M. Markovich - Chief Financial Officer

Hong Q. Hou - President, Chief Executive Officer, Director

Analysts

John Harmon - Needham & Company

Sam Dubinsky - Oppenheimer & Co.

Operator

My name is Brandon. I’ll be your conference facilitator today. At this time I’d like to welcome everyone to the EMCORE Corporation’s fourth 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. It is now my pleasure to turn the floor over to your host, Mr. Victor Allgeier of TTC Group.

Victor Allgeier

Last night EMCORE released its fiscal 2008 fourth quarter and year-end results. 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 Dr. Hong Hou, President and Chief Executive Officer, and John Markovich, Chief Financial Officer. John will review the financial results and Hong will discuss business highlights before we open the call up to questions.

Before we begin we would like to remind you that some 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 John.

John M. Markovich

Thank you for taking the time to participate in our call this morning. I will start by providing you with some highlights of our ’08 operating results and then address the fourth quarter.

Our consolidated revenue for the year totaled $239.3 million which represents an approximately $70 million or 41% increase over fiscal ’07 revenues. The $239.3 million includes $41.6 million of revenue contribution from the Intel acquisitions that we closed in February and April of this year and over the course of 2008 we continued to expand our business internationally with international revenues as a percentage of total revenues expanding from 27% in 2007 to 39% in 2008.

Our fiber optics business accounted for 72% of the consolidated 2008 revenues with the photovoltaic business representing the remaining 28%. Further on a segment basis, fiber optics revenues totaled $171.3 million for the year which represents a $60.9 million or 55% increase from the prior year revenue of $110.4 million. Revenues for our photovoltaic business totaled $68 million which represents a 15% growth on a year-to-year basis.

Consolidated gross profit totaled $29.9 million for the year which was essentially flat with the prior year with consolidated gross margins declining from 17.9% in 2007 to 12.5% in fiscal ’08 with the increases in fiber optics margins being more than offset by the declines in margins in the photovoltaic business. On a non-GAAP basis consolidated gross margins were 20.4% in fiscal ’08 comprised of 23.9% gross margins in the fiber optics business and 11.6% gross margins in our photovoltaic business.

Our consolidated operating loss for the year declined by $4.1 million or 7% and totaled $53.4 million in fiscal ’08 versus $57.5 million in ’07. On a non-GAAP basis the 2008 operating loss totaled $25.3 million.

Our fiscal ’08 net loss totaled $59 million or loss per share of $0.87 compared to $58.7 million or a loss per share of $1.15 in the prior year. On a non-GAAP basis the fiscal ’08 net loss was $27.1 million or $0.40 per share.

With respect to our fourth quarter operating results, our consolidated revenue for the fourth quarter totaled $60.6 million, an increase of 29% or $13.6 million when compared with the prior year fourth quarter revenues of $47 million.

Fiber optics accounted for $46.1 million or 76% of the quarter’s revenue which represents a 48% or $14.9 million increase over the $31.2 million in fiber optics revenue reported in the prior year, with 35% of the quarter’s revenue within the fiber optics segment being derived from the businesses that we acquired from Intel previously this year.

Photovoltaic revenue totaled $14.5 million or 24% of the quarter’s revenue compared with $15.8 million reported in the fourth quarter of fiscal ’07.

Moving on to gross profit margins. As a result of a number of year-end adjustments including inventory reserves which also took current quarter product price erosion into consideration, our fourth quarter consolidated gross profit was slightly less than break-even compared with $8.3 million in consolidated gross profit in the fourth quarter of 2007. On a non-GAAP basis fourth quarter consolidated gross profit was $11.7 million and non-GAAP gross margins were 19.4%.

On a segment basis fiber options gross margins were 8.9% compared with 17.4% in the prior year with a decline in margins principally due to significant inventory valuation write-downs. On a non-GAAP basis fiber optics gross margins were 20.5% for the quarter.

As a result of inventory write-downs and product warranty accruals associated with our CPV-related businesses, photovoltaic gross margins were -31.6% compared with 17.3% in the prior period. On a non-GAAP basis photovoltaic gross margins were 15.8% for the quarter.

The consolidated operating loss for the fourth quarter totaled $19.7 million, a $3.1 million increase from the $16.6 million operating loss reported in the fourth quarter of fiscal ’07. On a non-GAAP basis the fourth quarter operating loss was $8.1 million.

The company’s net loss for the quarter totaled $19.4 million or a loss per share of $0.25 which is a $1.9 million increase over last year’s fourth quarter loss of $17.5 million or $0.34 per share. On a non-GAAP basis our fourth quarter loss was $9 million or a loss per share of $0.12.

Moving on to the balance sheet and liquidity matters, as of September 30 our cash, cash equivalent, available for sale securities and restricted cash totaled approximately $24.7 million with working capital totaling approximately $70 million.

As we previously announced we closed a $25 million secured line of credit with Bank of America at the end of the fourth quarter and subsequent to the end of the quarter we sold $1.7 million in previously a liquid auction rate securities, entered into an agreement to sell the remaining $1.4 million in auction rate securities by June of ’10, and negotiated terms to sell our noncore equity interests for $11.4 million.

In addition we are currently in negotiations with an investor to sell a minority interest in our photovoltaic business as an initial step toward a spinoff of the business and we’ve received additional indications of interest from a number of other parties as well.

In addition to these financing initiatives we have also taken a number of other measures to reduce our cost structure and improve our liquidity. These include a recent reduction in our workforce of approximately 100 personnel, a significant reduction in the fiscal ’08 employee bonus payouts, the elimination of the fiscal ’09 employee bonus and merit increases, a reduction in capital expenditures and a major organizational emphasis on improving the efficiencies of our working capital management.

With respect to our order backlog, as of September 30 we had a backlog of approximately $56.3 million which was comprised of $35.2 million in photovoltaic backlog and $21.1 million in fiber optics backlog. We define order backlog as purchase orders or supply agreements that have been accepted by the company with expected product delivery or services to be performed within the next 12 months.

With that I will turn the call over to Hong for his operational and strategic update.

Hong Q. Hou

I want to address the market and the business environment and our strategy in the various sectors of our business.

Let me first discuss our business in the fiber optics area.

In the last quarter we successfully completed the transactions and integration of the Telecom, Enterprise and Connects Cable businesses acquired from Intel Corporation earlier this year. All of our obligations in our Intel transition service agreement are now complete and we have fully integrated the business into our organization’s structure. As a result of the transaction our customers have indicated that they are satisfied with the continuation of the supply and better customer service provided by EMCORE. The TSA or transitional service agreement charges for the fourth quarter totaled $980,000 which is better than the previous expectation of $1.5 million.

For the Telecom business the demand is actually pretty healthy especially in the Asian market. However the competition is fierce. As a result product prices have eroded significantly. Fortunately we are one of the few vertically integrated suppliers having internal capability for chips and modules.

In responding to the competition we have been transitioning to low-cost platforms. The qualification of these platforms has been completed and the transition is moving forward. With a more comprehensive process, the competitive process and platforms we are development our business opportunities very aggressively.

We have recently achieved significant market share for our 10 gigabyte [inaudible] lasers, integrated sub assemblies and transponder products from three major telecom equipment companies in Asia of which two are the new customers.

On the enterprise side of the business with additional short ridge, long ridge and extended ridge of the XenPak transceiver products from the Intel acquisitions along with our internally developed LX4 and CX4, we offer the most comprehensive product portfolio of the value products. We have been winning market shares due to our good quality, on-time delivery and competitive pricing. With the delay of SFP+ platform in some major customer accounts, the XenPak products actually gained an extended lifecycle.

Our parallel optical transceiver business continues to experience a very rapid growth. The demand for SNAP-12 transmitters and receivers used for back point interconnects is the main driver. The business is very strong in Q4 from Cisco for their new switch and router platform CRS-1.

Through the Intel acquisitions we have added a new product line, the Connects Cable. The active cables are connector ride and fiber cables based on parallel optical transceivers. It is a game changer for high performance computing. After initial missionary marketing and the stringent qualifications for customer acceptance, the demand is ramping up rapidly. We continue to lead this area through the introduction of a new product called quad data rate cable offering aggregated bandwidth of 40 gigabits per second.

In Q4 we implemented vendor managed inventory or VMI program for a major customer. We have been expediting our supply chain and manufacturing to meet the customers’ projected demand.

More than $5 million worth of products were transferred to VMI and was expected to be pulled before the end of Q4. However very little was pulled from this inventory due to reported multiple cancellations of orders from our customers in the last two weeks of September. So this caused a $5 million shortfall of revenue in our fiber optics business for Q4.

The newly implemented VMI will continue to add more demand in our working capital and adding more uncertainty in our revenue recognition especially in this market condition where every company is managing their inventory very closely.

Market conditions for the cable TV broadband fiber optics business have remained flat quarter-over-quarter but about 20% lower than the same period last year. While the cable TV multiservice operators or MSOs reported good operating results, the capital spending has been at least 20% below their plan.

Due to the short lead time and the high diversity of the product permutation, customers carry very little inventory. We usually experience shipment nonlinearity with a significant amount shipped in the last month of the quarter. However the trajectory of the product shipment changed suddenly in the last two weeks of September causing the shortfall on our broadband product revenue compared to the plan.

In the fiber to the home deployment and the increase of customer subscriptions from the phone companies, MSOs are reportedly losing customers for video services. We believe that this will stimulate their capital spending again. Our surveys with our customer base indicate that this will happen in the second half of 2009.

FY08 was a very productive year with respect to new product introduction. We introduced the five new product platforms in our broadband area in broadcasting and [qualm] transmission. These products addressed a trend of fiber deep applications in the cable TV network and continue to expand our market share. Once the capital spending resumes we are better positioned for the [inaudible] in this business.

In the area of passive optical network transceiver for fiber to the home applications we continue to supply B-PON transceivers as one of the two qualified suppliers.

In the September quarter we were awarded a major design win from a leading equipment OEM with volume shipments commencing in Q1 and ramping quickly throughout 2009. Furthermore we have been leveraging our expertise in cable TV in fiber to the home area and gained multiple design wins in radio frequency over class [inaudible]. We believe that it [inaudible] will be the future trend of a Greenfield deployment of the cable TV networks. The fiber will be brought out away to the home in this configuration.

Our video transport and specialty product sector was doing well. We were awarded a 13-year supply contract of code decoy transmitters and receivers from a major defense contractor. Our lithium niobate face modulator was also qualified for a very demanding space fiber optical [Jerro] application. This area of the product usually generates 50% of gross margin and a number of new optical [Jerro] components and transceiver opportunities are on the horizon. So it will be a very nice upside once materialized.

During the September quarter we were tracking well for our revenue plan in the first part of the quarter but the demand seemed to drop off a cliff after September 15. As a result the optical revenue decreased from $53.6 million to $46.1 million sequentially and the non-GAAP gross margin dropped from 27% to 20.3% due to the unabsorbed infrastructure fixed costs with the lower revenue.

The macroeconomic situation remains very challenging. While we have little control over the market, we keep our eyes on the spending very aggressively. This includes the workforce reduction and very close management of working capital as John highlighted earlier. We’re also very selective in the focus on our efforts in product development.

We expect the revenue of the fiber optics business for the December quarter to be flat sequentially. Based on the new design wins and newly qualified products and opportunities in the pipeline we expect a noticeable business recovery in the March quarter.

The acquisition of the Intel fiber optics business significantly strengthened EMCORE’s position in the fiber optics components and subsystems arena. With a comprehensive and diversified product portfolio in broadband, telecom, enterprise, specialty and high performance computing market and vertically integrated with an offshore low-cost manufacturing infrastructure we are optimistic that we will be able to ride through this economic storm.

Now let me discuss the solar photovoltaic side of our business. First, the space power business. In early September [inaudible] multiyear long-term purchase agreement with a major satellite integrator and are in the negotiation of a new purchase agreement with an existing major customer for their future demand. Our visibility for our space business is relatively good through mid-2009. With the challenging situation in the credit market, we are watching the development very closely.

With the lean manufacturing initiatives in engineering improvement, our product yield and operation efficiency in our solar cell fab has improved significantly in Q4. This has helped improve the gross margin of the space and terrestrial PV component products to historic levels on a non-GAAP basis.

Now let me turn the discussion to the terrestrial solar power business. I just want to remind you that the products we are offering including concentrative photovoltaic are CVP components and systems. CVP technology continues to gain market acceptance as a viable alternative to the competing solar technologies such as the polysilicon of thin film.

There are an increasing number of companies that have their CVP products certified for different market applications and some of the system integrators are just getting ready for large scale and cause effective deployment. We are pleased to see that this emerging technology is getting mature and being more broadly accepted.

As you know, the solar power business is still a policy driven business. The incentives for solar energy in different markets have improved dramatically in the recent months and the industry has accelerated deployment. However in our September quarter the incentive policy was at least favorable for the deployment of CPV.

During the quarter solar power developers were very concerned about the chance of a lucrative FIT and turf policy in Spain after the September 30 deadline. The industry was going through a building rush mostly based on proven and available products to investors. A major concern also exists for the US market as it was not clear if and when the investment tax credit will be extended beyond the end of year 2008. These market conditions were certainly very adversely affecting the adoption of emerging CPV technology.

As a result the takes rate of CPV components reduced significantly and delivery schedules were pushed to the right. In the meantime we have implemented a more strict credit policy on customers who have less credit history. Some of the product shipments were not consummated because some of the payment terms were not satisfactorily met. As a result our CPV revenue declined in Q4.

We continue to expand our customer base. In Q4 we signed two long-term purchase agreements for solar cell receiver products with two major customers based in the US for a total of over $40 million. We also substantially reached an agreement with two other major customers with their CPV system product qualified for Spanish in the European market. We intend to announce this in the near future.

Our strategy continues to focus on [inaudible] leader of solar cell technology. As reported before our Inverted Metamorphic solar cell technology was recognized with the prestigious R&D 100 award. It is anticipated that the efficiency levels in the 42% to 45% range will be achieved when adopted for use and are 500 to 1,500X concentrated illumination.

EMCORE expects to commercialize this technology through applications for space power first, build the infrastructure and then we will commercial for terrestrial applications by the end of 2009.

With a considerable investment in the solar cell components we have a build capacity of approximately 250 megawatt cells to receivers and 1,000X concentration. We have three receiver lines fully up and running in Albuquerque and the fourth line installed in [Empor] China is operational as well. We believe this capacity will be able to serve the market demand over the next 12 months; therefore the capital spending will slow down significantly.

As for the CPV systems we believe that we have done a good job in designing performance and reliability. Our Gen-II CPV system has been operating [inaudible] since January 2008. Four commercial installations totaling approximately 1 megawatt with three in Spain and one in China have been completed and connected to the grid. They operate in accordance to the specifications.

In an effort to improve the market competitiveness of our CPV system product we have increased our engineering effort for the next generation CPV system design and qualifications. The cost for our Gen-III product is targeted at $1.75 per watt with a module efficiency of 30%. Even with the price erosion of solar modules, we still expect the Gen-III product to be very competitive.

We’ll continue to offer the Gen-II product for sales of small projects for the purpose of market development until the [inaudible] of production of Gen-III expected to be in the second half of 2009. However as a discontinued product we have taken an approximately $4.5 million charge for Gen-II inventory in the warranty reserve in the fourth quarter.

All of our major bids for the future solar utility projects are based on our Gen-III product.

With respect to the business development activities of the CPV system we have recently signed a contract to sell 100 kilowatt CPV system to a company in China. The market demand for solar-based renewable energy in China is emerging as a result of the Chinese government’s solar power initiative. In total 80 megawatts are spreading across eight western provinces in China.

CPV offers advantages at the lowest carbon emission of the renewable energy options and discussions continue with potential partners on the intent to view the manufacturing plant in China drawing the [inaudible] to manufacture CPV systems designed and certified by us for the Chinese market.

In the midst of the current financial crisis the investment tax credit, ITC, in the US was approved to extend for eight years to everyone’s pleasant surprise. With that the US is clearly becoming the center stage of the solar power opportunity. Thus we have adjusted our business development strategy to focus on the opportunities in the US especially in the Southwestern states where the direct normalcy readings, the more favorable for the CPV technology.

We have in the meantime established network partnerships with several major companies worldwide to address the international markets.

Working with our strategic partners we have responded jointly to a number of RFPs by public utility companies in the Southwestern states. The role of our partners in this project is to organize equity and project financing and serve as owner/operators of the project.

We were officially short-listed for one project that totaled 115 megawatts in Southern California. Other parties are in the process of negotiating the final power purchase agreement.

On another two [inaudible] in other Southwestern utility projects we have been receiving very positive indications. We believe that we could be short-listed for further negotiations for at least 34 megawatts of the total 150 megawatt opportunities between the two projects. We expect official notifications by mid-January.

To set the point we have also commenced discussions in the finalization of a definitive agreement with a strategic partner which is an international conglomerate.

The construction of the solar power project is scheduled to start in late 2009 and the renewable portfolio standard of RPS will take effect by 2010 in many states.

These are clearly very exciting opportunities for the company.

We are in active discussions with several potential international partners to license the process for CPV system manufacturing in each of their local markets to accelerate our business growth.

In summary, we had a disappointing Q4 due to the macroeconomic situation and the CPV business launch. We have made a number of one-time write-offs and reserves in this past fiscal year in response to the current challenging market conditions.

Going forward our diversified product portfolio and cost reduction initiatives should put our fiber optics business on a reasonable path of recovery. Our new product in CPV allows us to be competitive in the solar power market. The new strategy in the business opportunities is very exciting. We are on the launch pad for what we believe could be a significant business growth in the latter part of 2009.

We expect the December quarter revenue to be relatively flat on a sequential basis with a significantly improved bottom line. Fiscal 2009 revenue is expected to increase by 10% compared to fiscal 2008.

With that I will turn it over to Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from John Harmon - Needham & Company.

John Harmon - Needham & Company

I’ll just start off with kind of a philosophical question. EMCORE’s core strength is in semiconductors and semiconductor materials, making solar cells and there are startups in other companies that emerged that are really focusing on making the best concentrators they can. It seems like you probably developed your own concentrators to demonstrate the performance of your solar cells, so what’s the long-term outlook for making concentrator systems which probably seems like a noncore business for you?

Hong Q. Hou

Things like the fiber optics business, you have the vertically integrated infrastructure and capability that will ultimately give you the advantage for cost. Our core competency is compound semiconductors. The solar cell side will continue to be our core competency but at the system side that’s addressed a bigger market opportunity. Plus with the solar cell technology and the understanding on the performance we are able to optimize the performance of the system level. So we’ll continue to push forward for both sides of the business, mainly the component side and system side.

John Harmon - Needham & Company

Secondly, you talked about a very aggressive pricing on optical modules. Was that in transponders or what types of products was that? And in optical do you think demand has stabilized after it fell off a cliff as you said or how do things look in the December quarter?

Hong Q. Hou

The demand seems to be stabilized. As I said our guidance or visibility at this point for the December quarter is to be flat with respect to the September quarter. It actually is not too bad considering this quarter the situation that’s been very challenging from the broader market point of view.

The pricer is mostly we have seen in the telecom areas, the 10 gigabit tunable lasers and transponders.

John Harmon - Needham & Company

I guess the drop off in demand was really late in the quarter but it was so severe and you certainly didn’t hit your target of break-even in the quarter. I’m just curious why you didn’t pre-announce since you really came up so short?

Hong Q. Hou

It came on pretty sudden. As I said earlier in the quarter we were trending to our plan pretty nicely and there’s so much uncertainty especially with our VMI, vendor managed inventory. We produce a product according to the forecast to the plan and we expect them to pull from that so that we can recognize it as revenue. In our financial systems typical has a delay in terms of getting the quarter closed and also in this time with the economic situation we were looking into the inventory, into the accounts receivable and all of that. So there are so many moving parts in there that would not allow us to close the quarter sooner to announce it.

John Harmon - Needham & Company

What was your cash flow from operations, what was your cash burn and what do you think it would be in the December quarter?

John M. Markovich

During the quarter on a free cash flow basis we consumed $6.6 million in cash which over the three prior quarters that’s the lowest amount of cash that we burned over the course of fiscal ’08 and actually the first three quarters of fiscal ’08 constituted approximately 90% of the cash burn for the entire fiscal year.

John Harmon - Needham & Company

Just to clarify; you said you burned $6.6 million in Q4 or was that for the whole year?

John M. Markovich

On a free cash flow basis which is our operating results net of our working capital accounts and net of capital expenditures we consumed $6.6 for the fourth quarter.

John Harmon - Needham & Company

You talked about the lack of the transition payments to Intel and some headcount reductions. Any kind of help you can give us on what cash burn could go to in the December quarter?

John M. Markovich

We’re not providing any guidance on the fourth quarter beyond the revenue that Hong outlined earlier.

Operator

Our next question comes from Sam Dubinsky - Oppenheimer & Co.

Sam Dubinsky - Oppenheimer & Co.

Could you guys just give me a quick rundown of your solar business, the terrestrial business in terms of cost per watt and where that’s trending this year both at the system level and also installed cost per watt for your customers? As a follow up to that, can you maybe just talk about how the demand environment is with mainstream module prices falling, how that’s going to impact the solar business?

Hong Q. Hou

For a Gen-II product as I outlined it was for the performance and reliability and time-to-market and one thing is which is the most important one was the cost was not very competitive. That’s why we decided to use that generation only for the market development. It was basically the optical principal and everything else the same.

The Gen-III we have been developing in the last seven to eight months with a cost target of $1.75 lower. That’s for the module pricing. For the installation our cost target of fully installed at less than $3 per watt. So that’s our target and so far it trends to our target very well. We have a prototype installed with the Gen-III design again backyard solar test fields and is performing to our expectations.

I know there are many reports of the polysilicon oversupply in the year 2000 that will certainly drive the price of the silicon module down but I think if we sell the module at $2.30 to $2.40 per watt or fully installed at $4.50 that still will be very competitive.

Sam Dubinsky - Oppenheimer & Co.

Could you just give us a little more color on the demand environment? I know some customers have started to push out and cancellations because of the credit crisis. How do you see that panning out over the next few quarters in terms of your terrestrial backlog and also RFP activity?

Hong Q. Hou

I think the credit market certainly did not help because that makes it more difficult for the financing arrangements for some projects in the pipeline for our component customers. But I think we have seen many customers using this opportunity like we are doing to get a new design to allow them to be more competitive. So the component demand as I said for the December quarter is still going to be low.

But as I said also a number of customers had their product certified and qualified for a different market and they are giving us a projection and indicating that by the later part of 2009 the demand will pick up. So we’ll just have to watch that very closely.

As for the systems side I think because our design is mostly for the power utility applications and the RPS, renewable portfolio standard, mandate provided in different states in the US is going to be the tipping point. For some public utilities companies they may need some solar allocations by as early as 2010 and then construction of the project has to start in 2009.

Sam Dubinsky - Oppenheimer & Co.

On some of your inventory charges it seems like we had a couple quarters of one-time charges. At what point do you think these charges start ending particularly in the solar business?

Hong Q. Hou

The inventory charges for the solar business I think this is the last quarter because the principal concern for that is we’re discontinuing the Gen-II product for the volume deployment. We have raw materials and some of the finished goods inventory and we believe we’ll sell the majority of them. But because of the uncertainty of timing we were wise to take the charges on the inventory.

Also we took some charges for the inventory on the fiber optics business. Those are still good inventory but right now it is probably the excess inventory considering the demand. It could be getting worse and based on that assumption, we took the charges. Apparently we’ll be trying everything we can to use up those inventories.

Operator

There are no more questions at this time. I would now like to turn the floor over to management for any closing remarks.

Hong Q. Hou

With that, let me make some closing remarks. Fiscal 2008 was a productive year for EMCORE. During the year we launched our new CPV terrestrial systems business and achieved significant market penetration in both CPV components and systems in the first full year of operation. As with most new technologies we incurred significant startup costs associated with establishing new product lines and building the required infrastructure. However we have now established a leading position in this emerging market and put this and EMCORE for future [inaudible] within this segment.

We also successfully completed the acquisition and integration of Intel Corporation’s Telecom, Enterprise and Connects Cable businesses. These acquisitions have served to significantly enhance our product portfolio and expand our customer base for widely increased leverage in scale within our fiber optics segment.

However we remain quite cautious about the current economic downturn. We believe that our company is now well positioned in this market and our company remains very focused on continuing to lower our cost structure, managing our working capital and achieving profitability.

Thank you very much for your attention today and we look forward to the next call.

Operator

Ladies and Gentlemen this concludes today’s teleconference. You may now disconnect your lines and have a wonderful day.

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