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Executives

Victor Allgeier

Mark B. Weinswig - Chief Financial Officer and Principal Accounting Officer

Hong Q. Hou - Chief Executive Officer

Analysts

Dave Kang - B. Riley & Co., LLC, Research Division

Edward A. Zabitsky - ACI Research

Alexander B. Henderson - Needham & Company, LLC, Research Division

Krishna Shankar - Roth Capital Partners, LLC, Research Division

EMCORE (EMKR) Q1 2013 Earnings Call February 5, 2013 4:30 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the EMCORE Corporation First Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the call over to your host for today, Mr. Victor Allgeier. Sir, you may begin.

Victor Allgeier

Thank you, and good afternoon, everyone.

Before we begin, we would like to remind you that the information provided herein may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. These forward-looking statements are largely based on our current expectations and projections about future events and financial trends affecting the financial condition of our business. Such forward-looking statements include, in particular, projections about future results, statements about our plans, strategies, business prospects, changes in trends in our business and the markets in which we operate.

Management cautions that these forward-looking statements relate to future events or future financial performance and are subject to business, economic and other risks and uncertainties, both known and unknown, that may cause actual results, levels of activity, performance or achievements of our business or our industry to be materially different from those expressed or implied by any forward-looking statements. Neither management nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements.

We caution you not to rely on these statements without also considering the risks and uncertainties associated with these statements and our business that are addressed in our filings with the U.S. Securities and Exchange Commission that are available on the SEC's website at www.sec.gov, including the sections entitled Risk Factors in our annual report on Form 10-K and our quarterly reports on Form 10-Q. We assume no obligation to update any forward-looking statements, to conform such statements to actual results or to changes in our expectations, except as required by applicable law or regulation.

With us today from EMCORE, Doctor Hong Hou, President and Chief Executive Officer; and Mark Weinswig, Chief Financial Officer. Mark will review the financial results, and Hong will discuss business highlights before we open the call up to questions.

I'll now turn the call over to Mark.

Mark B. Weinswig

Thank you, Vic, and good afternoon, everyone. Today I'm going to focus my discussion on our first fiscal quarter operating results and our balance sheet. Consolidated revenue for our first fiscal quarter totaled $49.3 million, which is an increase of $1.8 million or 4% over the previous quarter. The increase was primarily due to higher solar revenue, driven by increased shipments. Our Q1 revenue guidance was $49 million to $51 million.

On a segment basis, our Photovoltaics business accounted for $19.6 million or 40% of the company's total revenue. This represents a $2.2 million or 13% increase from the prior quarter. This was the first quarter with the full impact of the previous sale of the terrestrial systems product lines reflected. As discussed previously in the fourth quarter, EMCORE sold assets relating to the terrestrial systems product lines to Suncore as part of our realignment strategy. As we have said previously, while we believe in the long-term growth prospects of the space solar power business, our revenues in any given quarter may be a bit lumpy.

The Fiber Optics segment accounted for $29.6 million or 60% of the company's total revenue. This represents a decrease of roughly $4.4 million or 1% from the prior quarter. Hong will discuss the outlook for the Fiber Optics business later in the call.

Consolidated gross margin was 22.2%, a 12.5 percentage point increase from the prior quarter, primarily attributable to higher Fiber Optics segment and Photovoltaics segment margins. On a segment basis, Photovoltaic gross margin increased 8 percentage points to 30.5%, driven by higher revenue levels and the sale of the lower-margin terrestrial systems product lines. We were able to reach gross margins of 30% this quarter, which is in our target range.

Fiber Optics gross margin was 16.7%, a 14 percentage point increase higher than the prior quarter, primarily from lower E&O charges, excess and obsolete, and yield variances associated with our manufacturing transfer from California to China and Thailand. This includes the impact of negative gross margins of over $2 million in our tunable XFP product line due to ramp-up.

Excluding the TXFP product, our gross margin would have been closer to our target range of more than 25%. We expect our gross margins in the Fiber Optics segment to improve in future quarters as we complete the ramp-up of our new product line at our CM and the transfer of our manufacturing of our -- to our internal manufacturing resources overseas. We believe that during this quarter, EMCORE will be complete with its rebuild efforts.

Total operating expenses for R&D and SG&A were $12.3 million, excluding the flood-related charges and recoveries, gain on sale of assets, legal settlements and other items. The decrease in our SG&A operating expenses from the prior quarter was primarily due to severance-related realignment cost in Q4 and lower expenses associated with the terrestrial solar product lines that were sold in September 2012. R&D increased from the prior quarter as we repositioned resources back to product development efforts.

On a GAAP basis, the consolidated net income for the first quarter was $2.8 million, $9.4 million better than the prior quarter. We will continue to drive our results in future quarters as we ramp up our fiber optics manufacturing lines overseas, reduce our R&D levels in certain areas and reduce overhead cost. Our GAAP net income per basic and diluted share was $0.11. Our non-GAAP net income, after excluding certain adjustments, all of which are set forth in the non-GAAP tables included in today's release, was income of $0.1 million versus a $6.6 million loss in the prior quarter.

Please note that we have included additional information regarding amortization, stock comp and other items in today's release to provide further clarity on our results. This is the first quarter that the company has been both GAAP and non-GAAP profitable. We are very pleased by this achievement.

Now onto our order backlog, which we define as purchase orders or supply agreements accepted by the company with expected product delivery and/or services and revenue to be recognized within the next 12 months. At December 31, the company had a solar order backlog of approximately $35.3 million.

Moving on to the balance sheet. At the end of December, the company's cash, cash equivalents and restricted cash balance was $12.9 million. Our net cash increased $3.8 million from the prior quarter, primarily due to $9.5 million of proceeds from the stock sale in October 2012, partially offset by increased inventory levels to meet the ramp-up in production, and lower accounts payable levels.

Regarding the insurance recovery for the flood damage, in September, we completed the agreement with our contract manufacturer relating to consigned inventory and equipment damaged in October 2011. We have finalized an agreement that is expected to yield a total of $23 million in cash proceeds and the elimination of liabilities. Gains will be recognized on the income statement upon the receipt or title transfer, which we anticipate to occur by March 31, 2013.

During the fourth quarter, we received $4 million of cash receipts. And during the first quarter, we eliminated $4.2 million of obligations. In March, we expect additional receipts and/or the elimination of liability obligations of roughly $15 million, per the agreement.

Over the past few months, we have made significant strides in improving the business structure as evidenced by our move to profitability. We look forward to showing further progress as we continue to drive execution.

With that, I will turn the call over to Hong, who will discuss the company's strategic and operating initiatives and provide revenue guidance for the second quarter.

Hong Q. Hou

Thank you, Mark. Good afternoon, everyone. As Mark discussed, we achieved consolidated revenues of $49.3 million, which represents a 4% increase sequentially from $47.5 million in the September quarter. The revenue from the Fiber Optics segment was roughly flat, while the revenue from the Solar business increased 13% sequentially, from $17.4 million to $19.6 million.

The gross margin for both the Solar Photovoltaics and the broadband Fiber Optics business improved significantly to approximately 30%, and overall operating expenses was well under control, thanks to the business realignment completed in the September quarter. The net profit for the quarter was $2.8 million or approximately $0.11 per share. This demonstrates the positive outcome of restructuring and the flood recovery that the company has been focusing on over the last year. This is clearly a very significant milestone for the company.

Now let me give you an update on our business. First, I will start with the Solar Photovoltaics business segment. Our revenue in the space photovoltaics for the quarter demonstrated a substantial sequential increase due to strong demand in space programs. With some CapEx investment early in the year, manufacturing process was further improved, and we achieved a tangible benefit of our initiatives to focus on operational efficiency and increased product yield. As a result, the gross profit margin for this division recovered to over 30% level.

With the divestiture of the CPV systems business, the operating expenses was reduced by more than $2 million per quarter. These benefits from the restructuring is projected to be sustainable going forward and will serve as the baseline for us as we continue to drive profitability. The operating income for this business segment was more than $3 million in the December quarter on a revenue of $19.6 million, which is the amount of best results that this business has been able to achieve in its history.

The order backlog for Solar business, as of December 31, showed a sequential decline of $8 million to $35.3 million. We have, however, received a notice of award from an international customer recently, with a total contract value in excess of $20 million. We're currently in the final stages of executing this contract, which will significantly add to our order backlog. Several other smaller value new awards are also expected in the near term.

We have a number of government-sponsored research programs, which are targeting high-efficiency and lighter-weight solar cells for spacecraft applications. We have made great progress in advancing the technology and product performance, and believe that we hold a significant lead over our closest competitors in several key technology areas. We currently hold the world record for space solar cell efficiency with our IMM design, with measured values in excess of 35%. We plan to introduce this new solar cell to volume manufacturing over the next couple of years.

In summary, our position is well established in the industry and our production infrastructure is well capitalized. The solar business is expected to continue to generate nice operating profit and positive cash flow going forward. Our forecasted FY 2013 revenue is expected to be at record level, and our profitability are currently projected to show continuous improvements throughout the year.

Now let me discuss the market position and business outlook in the Fiber Optics business segment. In the broadband cable TV business, during the September quarter, our revenue recovered to pre-flood levels and the gross margin recovered to the high-20s. The broadband Fiber Optics business generated positive operating income in the December quarter for the first time since the flood.

As we discussed previously, the cable TV industry is going through a rapid transition from the original transmission architecture to DWDM and a longer-distance-based transmission solution. We have been very active in the standard-setting committees to help define new standard roadmaps, allowing substantial increase of transmission bandwidth in the linear optics broadband infrastructure. A number of new products were introduced to the market to allow the reach of medium distance in the range of 50 kilometers.

This requires high-power DWDM lasers with very low chirp, in combination with modulators. Our internal laser supply enables a more competitive pricing and a faster time to market. A number of MSOs in the U.S. are testing and qualifying this product for the domestic HFC network upgrade. The ramp of this product architecture in the U.S. market should represent rapid growth and enable EMCORE's leading position in this technology.

Many of these new products are currently used for greenfield deployment in some South American countries, as they are building up the infrastructure for hosting Olympics and World Cup games over the next several years. We sell our cable TV products to the equipment manufacturers like Cisco, Motorola, Aurora, et cetera. We are working on expanding market penetration through system integrators and distributors in their local markets.

Another very favorable dynamic is developing in China's market. China has just rolled out a new switching standard for their cable TV network called China DOCSIS or C-DOCSIS. This is to mimic the standards of HFC networks in the U.S. to enable the offering of high-speed Internet and voice-over IP. This is very encouraging as it signals the transition from a predominantly video broadcasting network infrastructure to a comprehensive triple-play one, with QAM modulators to improve the network's capability and capacity. This transition will not be possible without new products that we have been supplying to the U.S. market.

As one of the major MSOs announced last week, their CapEx spending for 2013 will increase by 3%, of which the spending for upgrade in scalable infrastructure, which is more related to the sales of our products, will increase by about 8.4%. However, the CapEx for the last quarter, the December quarter spending, decreased 22% compared to the year before. This lower spending caused some backup in the supply chain. So we have seen a slowdown in booking activities in December and January for cable TV products from our customers. Although short term, we see seasonality and demand decline, we're very bullish about the future of this business based on the engagement levels and qualification activities on our new products, as well as the outlook given by our customers. We believe the business will return to the approximately $20 million quarterly revenue levels in the second half of the year in our broadband Fiber Optics business.

During the December quarter, the revenue from our telecom product lines was flat compared to the September quarter. The unit volume of the ITLAs shipped was at a record high level, increasing sequentially by about 10%. The revenue, on the other hand, was about the same.

Demand is still very strong, but we lost some market share during the annual price negotiations with some customers. Although we have seen some new entrants into this market during our recovery from the flood, we believe that the coherent market segment continues to grow rapidly, even with additional competitors. Our capacity increase through the addition of process and testing equipment, as well as the production cycle time reduction, is on schedule. Currently, our revenue for ITLA is not limited by the manufacturing capacity.

Our micro-ITLA design is based on the same external cavity laser platform as ITLA, but it provides superior performance and enhanced functionality in a much smaller form factor than ITLA. The micro-ITLA products are going through Telcordia qualification, and we expect to complete the initial qualification by the end of March. Concurrently, some key customers are integrating this into their systems and conducting system-level validation. We have been closely engaged with the 3 major customers on 5 different coherent system platforms. The feedback has been extremely positive. The projected demand from these programs are about 50,000 units or about $40 million per year.

I believe we have the right strategy to grow our 40- and 100-gig coherent business by addressing the customer's future needs instead of dropping price and compress our margins. The first part of the strategy is that our products deliver superior performance in narrow linewidth and high power, which are important attributes, especially for 100-gigabit-per-second applications. It is believed that more 100-gig systems will be manufactured and delivered in -- than 40 gig in 2013. Our ITLAs are designed as the process of record for 100G coherent systems in most of the major OEMs.

Second, the introduction of micro-ITLA is to address the new application for 40- and 100-gig transponders. This is a market that a traditional ITLA cannot address, and to the best of our knowledge, we have a significant lead over our competition on micro-ITLAs. Thirdly, micro-ITLA will cannibalize the ITLA market, over time, for coherent line cards, due to its superior performance with low power consumption, smaller form factor and a lower operating and product cost.

We believe this strategy will drive positive share shift to us without hurting our profit margin. Our goal is to stay ahead of the competition with advanced technology development and to commercialize a full line of products for 40- and 100-gig coherent applications.

During the December quarter, we had a major challenge in ramping up the manufacturing volume of tunable XFP transceivers. The primary reason for the hiccup was due to the stringent requirement for optical alignment capability, given the very low margin and design tolerance of certain components. Over the last couple of months, we have been focused in this area. The good news is that we have improved the process and tightened the spec distribution of the key component. As a result, the yield has improved dramatically. We're now loading up the line with new components and expect the ramp-up to start in March.

Our tunable XFP product has been designed-in on 15 customer programs, and we have received a significant share allocation commitment from key customers. We understand that the field is getting more crowded, with the 3 leading suppliers already shipping in volume. The competitive advantage of EMCORE's tunable XFP is that our products demonstrate better performance, with both negative and 0 chirps, full-band tunability and high power. This is our TD [ph] attribute requirement for replacing 300-pin transponders.

The primary application for tunable XFP in 2012 has been to replace fixed-wavelength DWDM XFPs. We believe the 300-pin transponder replacement cycle is starting now. This is one of the few cases that when reviewed [ph] , customers will come. As Mark has discussed, the loss related to tunable XFP in the December quarter was approximately $4 million, which includes material scraps and warranty reserves. The successful launch of tunable XFP product this time around is expected to have significantly positive impact to our consolidated financials.

Turning to guidance for the second quarter of the fiscal year 2013 ending March 31, we expect to have revenues in the range of $45 million to $49 million. The sequential revenue decline is primarily due to seasonal demand softness in cable TV and delay of revenue contribution from tunable XFP. However, the impact to the bottom line will be very manageable, as we cut the loss through restructuring and recovering of our Fiber Optics manufacturing to a variable cost basis. We have worked hard to establish that profitability-focused culture, and we are seeing the benefit of that hard work now.

In summary, we achieved a sequential revenue growth in the December quarter and more importantly, achieved net profitability on both GAAP and non-GAAP basis. We have established the business structure and operational discipline that will make financial performance more predictable going forward. We continue to be excited about the combination of our business in the product portfolios and the tremendous potential of revenue growth and the improvement in profitability. Our focus this quarter is on improvement in yield and production output of tunable XFP. We look forward to discussing our progress in future quarters.

With that, I will turn the call over to Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Dave Kang from B. Riley.

Dave Kang - B. Riley & Co., LLC, Research Division

So first question is regarding your $20 million PV order, can you go over the shipment time frame? And so with that order, will second quarter backlog -- PV backlog will be back to sort of September quarter level?

Hong Q. Hou

Yes. So Dave, this is an order from an international customer, and the schedule -- the delivery schedule is over the next 2 years.

Dave Kang - B. Riley & Co., LLC, Research Division

2 years, okay.

Hong Q. Hou

Yes. So the shipment will actually start from this March quarter. But as of December 31, the contract was not finalized. Therefore, we were not able to add it to the order backlog.

Dave Kang - B. Riley & Co., LLC, Research Division

Got it. And then, moving to cable TV. So you expect [ph] the business to rebound in second half. Did you mean second half calendar or fiscal '13?

Hong Q. Hou

Second half calendar was imagined. Time Warner Cable just announced last week, as I said, the overall CapEx spending will increase by about 3%. But the parts related to our business will increase in 2013 by 8.4%. So we're watching for the service providers' CapEx very closely. And next week, Comcast will announce their CapEx plans. But we're all bullish for the year and -- but we do see little softness in December and January booking.

Dave Kang - B. Riley & Co., LLC, Research Division

Right. So I guess this C-DOCSIS is an opportunity for you, but what about the U.S. market going to DWDM? I mean, won't that draw additional competitors, as they initially go to DWDM?

Hong Q. Hou

Yes. So the U.S. transmission architecture has gone through 2 generations of transition from the original, almost like a relay structure, from the -- by the 1550 nanometer broadcast transmission, from parent to hub and then, 1310 from hub to node, transition to basically 1550 nanometer DWDM transmitter from parent all the way to node. So the third generation we're talking about is to stretch the distance of the DWDM transmitter, from typically about 20 kilometers to, right now, 50 kilometers. So there's a lot of excitement from the service provider side. They wanted to have that capability to reduce their operating expenses from their network. We're expecting a pretty meaningful ramp in the second half of this calendar year.

Dave Kang - B. Riley & Co., LLC, Research Division

Got it. And then, moving to telecom, you said you lost some market shares in 40G, 100G. Were you referring to mainly 40G or are you actually -- or did you lose some market share in 100G as well? And is it possible to quantify that?

Hong Q. Hou

Yes, we believe it's primarily 40G. But our friends, they claim they can do 40G and 100G. So -- but from our information, our customer base, who are the leaders doing 100G line cards, are using our product almost exclusively.

Dave Kang - B. Riley & Co., LLC, Research Division

So are you seeing your friend during like a bid competition or are you not seeing your friend there?

Hong Q. Hou

Our competitors. So they -- during the annual negotiation and market share allocation, I think they probably offered more favorable pricing for some customers. They can live with the performance level that our competitors are offering for 40-gig applications. They probably allocated more shares to them than to us.

Operator

Our next question comes from the line of Edward Zabitsky from ACI Research.

Edward A. Zabitsky - ACI Research

Good job putting the company in a much stronger position than it was 1.5 years ago. So I had a couple of questions. First of all, regarding the outlook on -- for the March quarter, I was wondering, by segment, what you're thinking in terms of do you expect Fiber Optics to be up or down or flat and same would be true for the PV segment. And second question relates to the TXFP market, I'm wondering now, what's your time frame for getting a ramp and what kind of numbers are we looking at in terms of the March quarter and beyond.

Hong Q. Hou

Yes. Thank you, Ed. To answer your first question, yes, our guidance for the March quarter declined, primarily from the Fiber side. The PV will still maintain pretty high level quarter-over-quarter. And for Fiber Optics, it's not declining from every product line. The one probably contributing to most of the decline is, as I said, the cable TV side. That industry, that market, it does have a little bit of seasonality. The first quarter usually, it is the slowest. To answer your second question, the tunable XFP, we expect to ramp starting in March, because the production cycle time from the initial component loading chips to chip on block to TOSA and then to tunable XFP and testing is about 6 weeks. So we started loading the line already, and we should get meaningful revenue in the March month. But the significant ramp is going to happen in the June quarter.

Edward A. Zabitsky - ACI Research

Okay. Now going back to the ITLAs and micro-ITLAs. What do you -- obviously, you should have with the new gen and ending out in front, you should have a -- I'm not concerned about the gross margins. Just wondering if -- what kind of pricing differential per unit that we'd be talking about for that transition from one to the next.

Hong Q. Hou

From the customer [ph] point of view, the micro-ITLA clearly is more favorable than ITLA, pretty significant. But from the pricing point of view, it's market-driven, and it's going to be more favorable than ITLA. But we're not going to be -- we'll initially be able to enjoy a higher margin, as we expect. So we're going to be priced competitively, but it's not going to be a huge decrease from ITLA, cost-wise. We should improve -- have a pretty marked improvement from ITLA to micro-ITLA.

Edward A. Zabitsky - ACI Research

Right. So it sounds -- just to try to summarize what you said, it sounds like, at least initially, you get some gross margin improvement while taking a small reduction in per-unit pricing. Is that fair to say?

Hong Q. Hou

Yes.

Operator

Our next question comes from the line of Alex Henderson from Needham.

Alexander B. Henderson - Needham & Company, LLC, Research Division

You guys got a profit. I'm really glad to see that, guys, congratulations. So I guess, the piece that I really want to focus on is the tunable XFP piece. I'm trying to understand -- you said you had $4 million in costs associated with that in the December quarter. You obviously have some startup costs associated with that again in the March quarter and a sequential change in the revenue associated with it. So can you help us out a little bit? I mean I assume you had to run some product through that line before you got the full qualification and recalibration done on it. How much are we talking about? That $4 million cost in the December quarter falling out in the March quarter, is it half of it and then another half into the June quarter? How should we think about that?

Hong Q. Hou

Yes, I think, Alex, it's a good question. In the March quarter, apparently, we would not be having the materials scrap or warranty reserve related to tunable XFP. But the startup cost is going to be higher, as the loading for the line is light and also, we're going to be having more technical people involvement. So I would say that probably the loss is going to be reduced by half of it. And I think we are expecting to really running in a normal pace and normal cost structure, as we projected, in the June quarter. So I think from the tunable XFP side, in the March quarter, we're going to be -- certainly have the improvement in the financial results.

Alexander B. Henderson - Needham & Company, LLC, Research Division

So it sounds like you cut that in half in the March quarter. And then, do you get to the break-even revenue level, or turn a profit in it in the June quarter? Is that the way you're thinking of it?

Hong Q. Hou

That's our expectation, yes.

Alexander B. Henderson - Needham & Company, LLC, Research Division

So if you're looking at pretty solid orders in the hand, it sounds like that would imply a pretty nice sequential improvement in revenues associated with that. I assume this quarter, because you've got it up and loaded for a portion of March, that it will be more than that $1 million kind of run rate that you've been kind of lumping along at. Can you give us some sense for how that -- what that looks like sequentially?

Hong Q. Hou

Yes. So Alex, probably in about a month or so, we'll be in a better position to tell. At this point, the results are very encouraging. But when we talk about the yield and the cost structure, we want it to be -- the data to be statistically more significant. So at this point, we're holding our breath on that. But so far, it's very encouraging. But we're not to the point, I can say with confidence, about the ramp-up target for the June quarter in terms of the revenue. And -- but in either case, this is going to be a significant ramp, significantly higher than the $1 million we're expecting right now .

Alexander B. Henderson - Needham & Company, LLC, Research Division

Just going back to the ITLAs for a second. Just to be clear, it sounds like, and I'm pretty sure this is the case, the loss of market share was a conscious decision that you made. My understanding is that your pricing was down a lot less than the 10% to 15%, and much of the industry up in the 15% range, typical range of price decline. You held the price here, is that what's going on with the share erosion?

Hong Q. Hou

Yes, and there are 2 dynamics into play. Usually, in the telecom industry, the suppliers will have to rip it [ph] for their market share with the key OEMs. So we have that part. But also remember last year, when we were doing the flood recovery, our customers offered up 20% of price increase compared to 2011 pricing, in order to get a share allocation. So we were trying to hold on as much of the 20% increase as possible. So from the math, you can tell we basically gave away half of it. And then, we lost some market share. But you're absolutely right, that was a -- that was almost by design, because otherwise we have to increase the capital expenditure to expand the volume and then the industry, in the meantime, as I talked about, is transitioning to micro-ITLA in about 1 year or 2 year time frame. We would not have enough run rate to recover the additional CapEx investment to get that additional market share. So it worked out well for us.

Alexander B. Henderson - Needham & Company, LLC, Research Division

Okay. And then, just so I understand, on the Solar side, the sequential -- I mean, that's a very nice number in Solar revenues for the quarter. It's a little higher than I would have expected. And as I know, it's kind of lumpy. Am I -- should I be looking at that coming down from the $19.6 million level back down to the mid-18 million-dollar level kind of range, sequentially moderating somewhat. Is that part of the decline? Or are you actually still looking at that holding up at that pretty rich level?

Hong Q. Hou

It's going to be like between $18.5 million to $19.5 million. It's roughly about the same level. We're going to be able to hold on that level pretty well. But you're right, the space business is going to be a little bit lumpy. For the June quarter or September quarter, it could be -- that lumpiness could come in play. But right now, I would say we have enough visibility and confidence to project that, in the March quarter, our revenue from the PV is going to be pretty much flat and maintained at pretty high level, as high as December level or just a slight decline.

Alexander B. Henderson - Needham & Company, LLC, Research Division

Okay. I'm going to put you on the spot with one last question. So you're profitable in the December quarter, which is just great to see, and it sounds like you've got a $2 million reduction in costs in the tunable XFP. You've got a couple of other things moving around a little bit. Is it reasonable to think that the cost reduction in tunable XFP will offset any margin pressures that result from slightly lower revenue sequentially, and due to pricing in the March quarter, they were able to sustain that profitability?

Mark B. Weinswig

Alex, this is Mark. Thank you for the question. I can promise you that's the one thing that we're definitely focusing on right now, is how to retain that profitability level. As Hong mentioned in his opening remarks, we're trying to instill that profitability culture. And this quarter, obviously, we have a little bit of decline from the seasonality and some other challenges, just it being the March quarter, but we're doing whatever we can to try and bring the cost structure in line and really bring in place an organization that can be profitability -- profitable at much lower levels. So over the next 6 months, you will start to -- continue to see our break-even levels continue to decline each quarter as we basically start to implement additional actions to reduce that breakeven level. But for the March quarter, it's a little bit early to tell, but you can be guaranteed that we're really focused on trying to retain that this quarter.

Alexander B. Henderson - Needham & Company, LLC, Research Division

So in the vicinity of breakeven it sounds like, which isn't a bad result in the seasonally quarter, great.

Mark B. Weinswig

In addition, Alex, just one quick thing is that on an EBITDA perspective, I mean, we will be able to generate some positive EBITDA this quarter, regardless of whether we just miss it on the non-GAAP level.

Operator

[Operator Instructions] Our next question comes from the line of Krishna Shankar from Roth Capital.

Krishna Shankar - Roth Capital Partners, LLC, Research Division

I just had a question. It sounds like the June quarter could see pretty good sequential growth in all the product lines. Solar could be a little lumpy, but in Fiber Optics, we could see a pickup back in the Cable business and also tunable XFP and ITLA. So do you think you'll get to sort of the target gross margins for the 3 segments within the Fiber Optics business in the June quarter? Or just give us -- remind us what are the target gross model -- gross margins.

Mark B. Weinswig

Thank you for the question, Krishna. So we look at our 3 different business segments -- our 3 different business divisions. We have the Cable TV, Broadband business, which we -- which our goal is to be in the high-20s to roughly about 30%, is kind of our gross margin target. We were able to meet that level in the current quarter, and we're -- we've been having a little bit of a decline in business. We're going to make sure we can do what we can to retain those levels and, that said, about kind of in our revenue run rates are about $18 million to $20 million a quarter. So we should be able to retain kind of our target margins there. On the Solar business, our target margins have been right around 30%. We were able to meet that level this quarter. On the telecom side, our margin level -- gross margin level should be in the 25% to 30% range. In the June quarter, if we're able to ramp up the tunable XFP, we'll be able to significantly improve our results, but we will be below kind of our target levels for the June quarter. But hopefully, as we go forward and the TXFP business starts to ramp, we'll be able to make it to our target margins. But for us, it's a little bit early in the June quarter to be able to meet our target margins, but we're getting much closer.

Krishna Shankar - Roth Capital Partners, LLC, Research Division

Okay. And for the tunable XFP business, since you're sort of -- you feel that you have solved some of the production issues, do you already have orders and backlog in hand for the revenues that you anticipate to get in the June quarter for the tunable XFP business?

Hong Q. Hou

Yes, we have a pretty healthy backlog right now for our initial ramp-up, and also, the customers, as I said, for this product they will come when we can build a really -- in a way, in this market, when we have -- already have 3 competitors shipping in volume, the only reason that the customers are waiting for our product is because our product software [ph] pretty stringent specification requirement, and we see they give us some projection on the 300-pin replacement and the volume for it. So we are optimistic about the future quarters as we ramp up the production capacity.

Krishna Shankar - Roth Capital Partners, LLC, Research Division

And finally, on micro-ITLA, how rapidly will that ramp and what are the impacts on gross margin starting late in 2013? Can you talk about the ramp on your micro-ITLA?

Hong Q. Hou

Yes, the micro-ITLA, the ramp-up is easier than tunable XFP because we can leverage the production infrastructure that we have already established for ITLA. For example, the testing, they are identical. So really it depends on, as I talked about, there's 5 platforms and our customers are doing qualification validation, how quickly they can start implementing that. Those are going to be the first wave of demand. Then, there are some other things from cannibalization to the traditional ITLA is going to be happening over the next 2 years or so. So if you look at ITLA and the micro-ITLA altogether in one product line, that's how we view it. It's going to be continuing to increase in volume pretty significantly. But there are going to be some shift between the volume of ITLA and the micro-ITLA. So certainly, micro-ITLA is the product of the future.

Operator

And with no further questions in queue, I'd like to turn the conference back over to management for any closing remarks.

Hong Q. Hou

Right. Thank you very much for dialing in today. Over the next couple of months, we plan to present at the 2013 Piper Jaffray Technology Conference in New York City on March 12 and the 25th Annual ROTH Conference in Dana Point, California on March 18. In addition, we will be exhibiting and meeting with the customers and industry analysts at the 2013 OFC conference in Anaheim, California from March 19 through 21. So we look forward to meeting you and talking to you during these events. Thank you very much. Bye.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect. Have a great rest of the day.

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