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Rubicon Technology Inc. (NASDAQ:RBCN)

Q2 2010 Earnings Call

August 5, 2010 05:00 pm ET

Executives

Raja Parvez – President and Chief Executive Officer

Bill Weissman – Chief Financial Officer, Treasurer and Secretary

Analysts

Jonathan Dorsheimer – Canaccord Genuity

Steven Chin – UBS

Avinash Kant -- D.A. Davidson & Company

Yair Reiner - Oppenheimer & Company

Anil Doradla - William Blair

Amar Zaman - Piper Jaffray

Lauren Stroller - Lazard Capital Markets

Operator

Good day ladies and gentlemen and welcome to the Second Quarter 2010 Rubicon Technology, Inc Earnings Conference Call. My name is Glen and I’ll be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s conference. (Operator instructions) and I’d like to turn the presentation over to your host for today's conference, Mr. Bill Weissman, Chief Financial Officer of Rubicon Technology. Please proceed, sir

Bill Weissman

Thank you Glen and good afternoon everyone. We are pleased you could join us today for Rubicon’s second quarter 2010 earnings conference call. My name is Bill Weissman, and I'm Rubicon's Chief Financial Officer. With me today is Raja Parvez, Rubicon's President and CEO.

We have allotted one hour for our call this afternoon. Raja will provide an overview of second quarter results of operations and discuss the current market environment and then I will review our financial results in detail as well as discuss our outlook for the third quarter 2010. We will then be happy to take your questions.

Today's call is being simulcast on our Investor Relations website located at www.rubicon-es2.com. A replay of this call will be available for eight days and the webcast will be archived in the Investor Relations section of our website. As a reminder, our press release and preliminary financial statements are also available on our website

Before we begin, please be advised that certain statements in this presentation relate to future results that are forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, the accuracy of which are necessarily subject to risks, uncertainties, and assumptions as to future events that may prove not to be accurate.

Factors that could cause actual results to differ materially from those expressed or implied include general economic conditions and factors discussed in our most recent Form 10-K and other filings with the Securities and Exchange Commission.

We undertake no obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise.

Now, I’d like to introduce our President and CEO, Raja Parvez.

Raja Parvez

Thank you, Bill. Good afternoon everyone and thank you for joining us today. The second quarter was a record quarter for Rubicon with revenue increasing 37% sequentially to $15.8 million, gross margin rising to approximately 46% and diluted earnings per share reaching $0.18. Demand continues to be very strong from the LED market as the adoption of LED back lighting for medium to large displays such as LED LCD televisions, desktop monitors and Notebook and Netbook computers continue at a rapid pace and general lighting applications for LEDs continue to advance.

Existing LED chipmakers continue to add significant capacity and there are many new entrants into LED chip manufacturing particularly in China where local governments are providing subsidies for the purchase of MOCVD reactors. As a result, we expect to see continued strong demand for sapphire.

The in balance in sapphire supply and demand resulted in a 16% sequential increase in average selling prices in the second quarter and we expect another sequential increase in ASPs in the third quarter of at least 20%. Bill will provide more information on our third quarter outlook in a few minutes. We expect continued strong growth in LED backlighting for the next several years with LED backlighting for televisions and large displays achieving at least 75% penetration by the end of year 2012.

In addition, LED used in general lighting applications continued to develop with industry report indicating that LED sales in this market are expected to be up 30% in 2010 over the previous year with continued strong growth over the next several years. The trend among the major LED chip manufacturers towards using larger diameter substrates continues and in the quarter 72% of our revenue from substrates sale came from greater than 2 inch material with only 28% from the sale of 2 inch.

It is especially worth noting that our revenue from the sale of 6 inch polished wafers increased 140% sequentially, going from 1.8 million in the first quarter to 4.4 million in the second quarter with all of this incremental revenue coming from the LED market. We currently sell 6 inch polished substrates to several LED chip manufacturers.

Most of these companies are in varying stages of research and development using 6 inch wafers. However, one of these customers, which is one of the world’s leading LED chip manufacturers, is now moving into production using 6 inch substrates and I am very pleased to announce that Rubicon has signed a long term supply agreement with this customer to supply six inch poly substrate in support of this initiative.

The contract starts in November of this year which is when our current purchase order with them is complete and runs through the end of year 2011 and has a total contract value of $71 million. This continued migration to larger diameter substrates by the world’s leading chip manufacturers is an important trend for Rubicon because our high volume capabilities in both larger diameter crystal growth and large diameter wafer polishing uniquely positions us to serve this growing segment of the market.

While continually evolving opportunities in the LED market are very exciting, we also see significant opportunity in the two other markets we serve, the RFIC market and the optical market. Demand is strong in both of these markets. However, we have limited sapphire to sell into this market at the moment. Margins are higher in LED sales and it is strategically important for us to provide as much material as possible to those LED customers that are leading the effort to move to larger diameter substrates.

As a result, our revenue from the RFIC market and the optical market was down slightly in the second quarter as compared to the first quarter of this year. Once our additional capacity begins to come online, we’ll be able – we’ll be in a better position to take advantage of this growing market as well.

Central to our ability to capitalize on these exceptional market opportunities is the successful completion of our expansion plans. As I’m sure you’re aware, we have a major capacity expansion initiative underway that involves adding two new high volume manufacturing facilities to significantly expand both our crystal growth and post crystal growth capacity.

Our new crystal growth facility in Illinois will house larger furnaces giving us even greater ability to serve the growing demand for large diameter substrates. Our Asia facility will significantly expand our capacity to process large diameter wafers and reduce our current crystal growth costs.

Both of these facilities continue to be on schedule and on budget. The schedule calls for us to open both facilities by year end with some capacity coming online in the fourth quarter. Capacity will continue to come online throughout next year and we anticipate both facilities to be fully operational by the end of 2011.

In June, we completed a follow on offering in which we raised approximately 61.5 million for the company. This strengthens our balance sheet. These funds will help finance the remainder of the current expansion project and should allow us to smoothly transition into the next phase of expansion when the time comes. I’m pleased with our financial performance, the projects we have made on our capacity expansion and in expanding our customer base and I’m very excited by how the LED market is developing and in our position to capitalize on that market now and in the future.

I would now like to turn the call over to Bill who will provide you with greater details on the financial results of the second quarter and our guidance for the third quarter of 2010. Bill.

Bill Weissman

Thank you, Raja. Revenue for the second quarter was $15.8 million as compared to $11.5 million in the previous quarter and $3.2 million in the same period last year. Revenue growth has been driven by strong demand from the LED market as Raja described. Our revenue from the LED market in the second quarter was $14 million, up 46% from first quarter 2010 LED revenue of $9.6 million.

Given that we have been operating at full capacity in our crystal growth operation, the sequential increase came primarily from increased ASPs and shift in product mix. ASPs from substrates increased approximately 16% sequentially with pricing increase across all diameters. Revenue from large diameter material greater than two inch represented 72% of our substrate sales in second quarter as compared to 64% in the previous quarter.

We reduced the volume of two inch core sold in the quarter in order to sell more large diameter material particularly six inch polish wafers which, as Raja mentioned more than doubled sequentially to $4.4 million in the second quarter, up from $1.8 million in the prior quarter. We have been ramping our polishing operation in Illinois in response to the demand for six inch wafers and that operation is now close to full utilization.

As previously mentioned, revenue from the SOS and optical markets was slightly lower than the prior quarter due to allocation of our materials to the LED market. Our revenue from the SOS market in the second quarter was $900,000 as compared to $1 million in the previous quarter. Our optical revenue for the second quarter was $800,000 compared to $900,000 in the prior quarter.

Our gross margin increased ten percentage points sequentially to 46%. This increase is primarily attributable to the increased selling prices of our substrates and change in product mix. Operating expenses in the second quarter totaled $3 million, up from $2.6 million in the prior quarter. Sequential increase in operating expenses was primarily the result of increased professional fees and costs associated with establishing a sport infrastructure in Malaysia.

We recorded a loss on disposable fixed assets totaling $305,000. In evaluating our equipment scheduled to be moved to our Malaysia facility, we decided that certain equipment should be replaced. The cost of the replacement equipment is covered under our current capital expenditure budget.

Diluted EPS in the second quarter was $0.18 per share on an average diluted share count of 21.9 million shares, up from $0.07 per share in the previous quarter. Turning to the balance sheet and cash flow, our cash position increased to $94 million in cash and short term investments at June 30th, with the completion of our follow on offering in June.

We generated cash from operations in the quarter totaling $5.6 million and capital expenditures totaled $15.8 million. Capital expenditures were heavy in the quarter because of the purchase of the building at Batavia, Illinois which will house our new crystal growth operations and payment of a significant portion of the construction cost of our new Malaysia factory.

As Raja mentioned, our expansion plans remain on schedule and on budget.

Our accounts receivables remain of high quality. DSO at the end of the second quarter was 53 days, five days lower than DSO at the end of the prior quarter and ten days lower than at the end of the second quarter of last year.

Inventory balances remained essentially unchanged compared to the prior quarter end at $6.8 million. Inventory at the end of the second quarter 2009 was $8 million.

Regarding our outlook for the third quarter of 2010, we expect continued strong demand in the LED market and another sequential increase in earnings. We are expecting revenues to be up 23% sequentially to $19.5 million in the third quarter driven by an additional increase in ASPs of at least 20% and continued shift in product mix to large diameters.

We anticipate gross margin in the third quarter to be in the low 50% range with a diluted earnings per share of approximately $0.28 based on our projected diluted share count of 24.3 million shares. The average share count will be up over the second quarter due to the secondary offering completed in late June.

I would like to now turn the call back over to Raja for some closing comments and then we’ll be happy to take your questions.

Raja Parvez

Thank you Bill. In summary the markets we serve continue to grow rapidly and as a result demand for our products remains very strong. Large diameter substrates are becoming increasingly important in the LED market and as expected we are now seeing increasing orders for six inch material.

Our high volume competency in both large diameter crystal growth and large vapor polishing positions us very well to capitalize on this trend.

Our expansion plans continue to progress on schedule and these new facilities will further increase our advantage in large diameter production. This is an exciting time in the adoption of LED technology and I believe Rubicon is extremely well positioned to capitalize on this market as it evolves.

I want to thank you all for joining us today and thank you for your continued support. Now operator, may we take our first question?

Question-and-Answer session

Operator

(Operator Instructions). The first question comes from the line of Mr. J. Dorsheimer, please proceed.

Jonathan Dorsheimer – Canaccord Genuity

Hi, thanks and congratulations on a great quarter and outlook guys.

Raja Parvez

Thank you.

Jonathan Dorsheimer – Canaccord Genuity

I have a few questions and they really fall into two categories the first being a little bit more transparency around your cost structure and then the second on the six inch contract. So maybe to start, great job by the way in the gross margins, Bill could you provide us with a little bit more transparency around sort of what’s fixed and variable costs so that we can I think probably help people better understand how you’re seeing these step ups in gross margin?

William Weissman

Sure, I can give you the breakout by category, percentage of cost of good for the quarter. Labor was about 27%, raw materials 15%, consumables 20%, utilities 15%, depreciation 17% and then there is obviously some others.

Jonathan Dorsheimer – Canaccord Genuity

Alright, that’s helpful. And then--so essentially with flat pricing on a go forward you’re going to be in the low to mid 50% margins at this point, so any pricing would obviously 100% flows to the contribution, correct?

William Weissman

That’s right, yes.

Jonathan Dorsheimer – Canaccord Genuity

Alright, and then -- that’s helpful thanks, and then the second question just around the six inch contract, Raja, congratulations by the way on signing this, looks like it's great news. It comes to about 160,000 wafers and if I convert that to two inch equivalent I get about a 1.5 million. So am I looking at the right way, that you basically – you pre-sold about 30% of the incremental capacity?

William Weissman

We’re not obviously giving the number of wafers or the price, our customer will obviously want that to be kept confidential but you’re right in that it's certainly not a majority of our expected capacity.

Jonathan Dorsheimer – Canaccord Genuity

Alright, and then what about -- are there price breakpoints associated with the -- or is it pretty level? And the reason that I’m asking is I’m just trying to figure out as we go forward here and look at pricing is this basically taken out and sort of are you accounted for? Is that the right way to look at it or does that contract assume sort of 20% sequential increases in prices as we go forward?

Raja Parvez

Jon as far as the pricing is concerned it is fixed pricing for the entire length of the contract.

Jonathan Dorsheimer – Canaccord Genuity

Alright, and in terms of--we’re seeing a 20% sequential increase in Q3, I mean Q3 is already decided at this point, can you give any additional color on some of the negotiations that you’re having with Q4? May be just even directionally what you’re seeing there? Thanks.

Raja Parvez

Yes we are now – as we mentioned previously we usually book one quarter at a time and we continue to have discussions with the customers right now but obviously the focus is on the first to book the larger diameter by diameter size six inch to four inch and those discussions are going extremely well. And we are on track, on target what we wanted to achieve. Again main focus is to support first the LED chip and our electronics customers because that’s where our main focus is followed by core customers vis-à-vis [Indiscernible] from two inches, three inches and to a degree four inches. But all discussions are going on track and on path and we believe that we’ll complete that within the due time that we have set for us ourselves.

Jonathan Dorsheimer – Canaccord Genuity

And then last question Bill on taxes, with Malaysia coming up I assume you have a tax holiday from Malaysia so if most of that transfers to polished product in the large area I assume we should see a--what type of taxes should we be looking at? Will you be able to benefit from transfer pricing from a tax perspective?

William Weissman

Well, we negotiated a ten year tax holiday with the Malaysian government so we do have a holiday. We’re still working on a transfer pricing model right now but I would expect the tax rate to be no more than 30% but it's a little early yet to tell you exactly what it will be.

Jonathan Dorsheimer – Canaccord Genuity

Alright, thank you.

William Weissman

Thank you.

Operator

Your next question comes from the line of Mr. Steven Chin of UBS, please proceed.

Steven Chin – UBS

Okay, hi Raja and Bill. Also congratulatory results on this new agreement. A follow up for the last question, what percentage of the 2011 production [rate] does this new contract take up? If I go through the map I also get around 20% to 25% of the 2011 production, are we [Indiscernible] that right ballpark?

Raja Parvez

Well first of all as you know what we are going to do is this; we’re going to continue to expand our expansion growth at crystal growth level and the pulsing level and that is pretty much consistent with the introduction and production schedule of our customers.

But then at the end of the 2011 then we will have a fully operational facility to represent less than [total haul] capacity but that is based on the current plan. We’ll continue to add capacity and support other customers as we move along on this pack.

Steven Chin – UBS

Okay thanks a lot.

Raja Parvez

And as you know we are working with major chip and electronics companies on six inch projects and some of those – all of those customers are at varying stages of introduction of six inch program into their manufacturing facilities ranging from research development to small volume to medium volume – no to large volume. And we have a significant market position i.e. our market position in six inch area especially key market position and we intend to maintain by continuously adding our capacity both in crystal rod and polishing

Steven Chin – UBS

Thanks Raja. So it’s about one third, you would think 2011 could be the…

William Weissman

Even a little less than that.

Raja Parvez

I think it will less than that Steven considering that we continue to add the capacities

Steven Chin – UBS

Okay and then just a follow up question just on the concept the contract I mean, how should we think about Rubicon looking to do business on [indiscernible] in terms of modeling, should we think about contracts as the way to go forward in this environment or is this kind of just a strategic partnership?

William Weissman

Well, this was a bit unusual and it was a six inch, dedicated to six inch. As you can recall we said we really are kind of steering away from long term contract at the moment given that pricing is increasing sequentially. And also based on kind of the experience we have in the past with customers not honoring contracts when the market cuts off. But this again obviously is a unique situation. It’s a first customer really moving at the high volume production on six inch. We needed to demonstrate to them that we would be there to support them and it was important part of the equation for them as well. So there may be more but there will most likely be in larger diameters.

Raja Parvez

And also Steven that this is the industry’s first ever single most sapphire contract issued by any company to any company. So this also solidifies Rubicon’s leadership position not only in the crystal growth and large diameter but also in finished products.

Steven Chin – UBS

Great, thanks Raja. Good luck.

William Weissman

Thank you.

Operator

Your next question comes from the line of Mr. Avinash Kant of D.A Davidson & Company. Please proceed.

Avinash Kant -- D.A. Davidson & Company

Good afternoon Raja and Bill.

Raja Parvez

Hello.

Avinash Kant -- D.A. Davidson & Company

Quick question on, could you give us some idea about how much of the NOLs you have remaining at this point?

William Weissman

Well, we ended the year with a little over $50 million of NOLs.

Avinash Kant -- D.A. Davidson & Company

50, five zero?

William Weissman

Yes

Avinash Kant -- D.A. Davidson & Company

Okay and that’s all in the US I believe or?

William Weissman

All US, yes.

Avinash Kant -- D.A. Davidson & Company

Alright, okay. And then your margins have been of course improving and then there was a question already earlier about that. Now on the six inch historically your margins have been much better. Is this contract any different than what you’ve had in the past?

William Weissman

We’re not giving any specific on pricing on this contact but obviously we feel margin on this contract are very good and you’re right our margins on [indiscernible] have been historically very good and now we’re pleased that even the small diameters given the pricing increases we’ve seen are also very strong.

Avinash Kant -- D.A. Davidson & Company

Right and there was some news out there in some publications talking about some slow down especially on the TV side in Taiwan. Would you be able to comment qualitatively, have you seen anything in terms of any slow down or weakness at your customers or if you at least have you heard about this one?

Raja Parvez

No, first I have heard about this through the news just like you did. No I have not seen any evidence from any customer or any part of the world regarding any slowdown; demand continues to be very, very strong and supply is still very limited. So I have not seen, I was there last two weeks I just came day before yesterday from all those Asian countries, I was there. So I have not seen from any customer on any one of those items that you mentioned.

Avinash Kant -- D.A. Davidson & Company

Perfect, thank you so much.

Operator

The next question comes from the line of Yair Reiner of Oppenheimer & Company. Please proceed.

Yair Reiner - Oppenheimer & Company.

Great, thank you. First on the long term contract, can you give us a sense of how that 71 million kind of plays out over the next year, is it pretty much one year or is it kind of going to be growing at a pretty steady rate over the next five quarters?

Raja Parvez

No it gradually grows based on the volume for next five quarters yes.

Yair Reiner - Oppenheimer & Company.

Okay and then in terms of pricing, you mentioned that negotiations for the fourth quarter are going well. Does going well mean that you see pricing kind of trending flattish on the third quarter maybe slightly down slightly up, I know it’s a bit early but right now I’ve got to make the call, how does it look?

William Weissman

It is early but at this moment it looks like it’s going to continue to increase some in the fourth quarter but it is a little bit early to say.

Yair Reiner - Oppenheimer & Company.

Sure, thanks. And then in terms of the supply demand right now supply is clearly up, demand’s is clearly up a shipping supply, kind of based on the intelligence that you’ve gathered from the industry, when do you think that picture becomes a little more balanced?

Raja Parvez

Well based on the continued growth of the LED industry and different sectors in it, based on what I see right now is I believe that this will continue for quite some time. It’s hard to tell but if – I believe the industry will continue to grow and I believe this imbalance will continue for quite some time and it’s very difficult at this point to predict because there is such a strong demand from our customer from all regions, from all applications and all diameter sizes that I don’t see at least in the short term any changes into the situation.

Yair Reiner - Oppenheimer & Company.

Final question from me; it sounds like your capacity in the third quarter is going to be flat if that’s right. Can you give us a sense of how much capacity might increase in the fourth quarter in percentage terms, thank you?

Bill Weissman

Well it’s again a little early yet, we will add capacity in the fourth quarter, our new facilities will be open and we will have some capacity coming from and we’re very confident in that, but the exact amount at this point, we’d like to be prudent and not going to give you the exact date on that quite yet, but we will be adding capacity in the fourth quarter.

Raja Parvez

But rest assured as Bill mentioned that we are on track in both facilities, on budget and we’ll make every effort to make sure that we stay on track and continue to add capacity because we have a large customer base that we need to sport all of them under the significant demand and so we plan to do that.

Yair Reiner - Oppenheimer & Company.

Okay then one follow up if I could in terms of budgeting, any sense regarding to OpEx of about 3.3 million for the current quarter. How should we see that kind of trending for the next few quarters?

Bill Weissman

It should be in the three, the 3.3 range for the next three quarters.

Yair Reiner - Oppenheimer & Company.

Thank you.

Operator

Your next question comes from the line of Anil Doradla of William Blair. Please proceed.

Anil Doradla - William Blair

Yes, quick question guys around the $71 million contract. Can you talk about potential applications that this customer might be using it for and you talked about this contract pretty much ending end of next year, but do you potentially see this customer extending it potentially the same amounts over the next couple of years?

Raja Parvez

Well five, as five year applications are these are exactly consistent what the industry going through, back lighting units and eventually at some point turning into general lighting, general illumination. So that’s an, and as you know most of these major electronics companies are focused not only on the back lighting unit but also on general illumination. So it is going to dovetail at the industry market, of course some of these electronics companies are trying to compete ahead of anybody others and that’s why they’re focusing on major expansion and large diameter applications.

Look, this is not a new customer for us, we are currently and we had been since January supplying significant amount of six inch polish wafers from our Chicago facility. As Bill mentioned that the reason that this new contract is starting in November of this year is because our current purchase order will complete in October. So the, we have been very well with these customers, we’re supplying a high quality product, they’re happy with us, this relationship is growing and becoming more and more stronger and I see no reason that will continue this trend. But as for the specific what the wording will be in 2012, it remains to be seen based on the data and the market conditions, but we’ll continue to work and serve them well so that we’ll make sure that we stay the day.

Anil Doradla - William Blair

Very good and building up on the question that was asked about on the global supply, the supply and demand, qualitatively can you talk about supply and demand, put some takes as we move from the six inch down to the two inch, is it pretty much across the board, do you feel dynamics the same or you think there’s slight differences?

Raja Parvez

Well first of all the focus of, especially the technology or it cheap company is to move to larger diameter, okay? But still there’s still a significant number of chip manufacturers who use the two inch material which is also very, very strong demand.

So the way I’m seeing the trend is this, major electronics and chip companies already have moved to the larger diameter or moving as progressively as they can based on the availability of the resources. But I believe that all of this is turning towards in all those companies which have more technology especially on the [epitectual] growth. But as you can see that the new interims are also entering because of the effectiveness of the supply chain especially in China there is a lot of incentives given to the local companies to add more know how and skill set in the LED supply chain.

So I will see that two inch will also continue to grow because many of those companies it is likely that they will begging production at two inch and then progressively move to 6 inch or 8 inch and 4 inch depending on their technology know how. So I think that this number of customer merchant from all regions rather who are using 2 inch versus 4 inch. But overall I believe all time it will continue but focus will be more and more larger diameter because it is providing more economical benefit to major companies who have chosen to go to larger diameter.

Anil Doradla - William Blair

So Raja would it be fair to say that in terms of supply and demand the 6 inch would be the last to come on board in terms of equilibrium, or you think that would be the first to come on board in terms of equilibrium?

Raja Parvez

I think in terms of equilibrium probably 6 inch will be the last one to come but at the same time it is coming a pretty big way because this is being undertaken by the major very well capitalized technology company and that’s why you see one of this evidence that this contract we have is only for 14 months and it’s pretty significant and that’s one evidence. And obviously we are working with many other customers who are also in various stages of 6 inch as well.

Anil Doradla - William Blair

Thank you very much guys.

Raja Parvez

Thank you.

Operator

Your next question comes from the line of Amar Zaman of Piper Jaffray

Amar Zaman - Piper Jaffray

Hi Roger, hi Bill. Congratulation on a great quarter. I guess majority of my questions have been answered or have been asked already and answered. But just to go back on, there has been a lot of questions on 6 inch, so let me a question on 8 inch. Can you give us an update on sort of a development from the 8 inch grant, how the qualifications are going there, how many customers you have that are qualifying or working with you on 8 inch development?

Raja Parvez

Well for competitive reason I can’t give you the number of customers on 8 inch, but we are working with customer on 8 inch development. We are also working with the equipment manufactures on the 8 inch as well. And I believe that will take its time but I think the major focus right now is by our customers the largest is the 6 inch by 8 inch is also in the back ground initial R&D’s are going on with customer that we have been working for a year plus or so.

Amar Zaman - Piper Jaffray

Do you think that 8 inch is out another year maybe or two years?

Raja Parvez

Probably, I think that time frame seems reasonable.

Amar Zaman - Piper Jaffray

And then just you know an equipment manufacturer, so an equipment manufacturer made an acquisition of a crystal growth company for some technology as well as crystal growth. They have talked about getting into the – having a supplying equipment to the sapphire crystal growth industry over the next year or the next 16 months at least. What are your thoughts about that and do you think that will change the landscape of the sapphire industry in terms new entrants?

Raja Parvez

First of all no, I do not believe that will change the landscape, okay? I cannot comment on the specifics of a given company but I can state the facts to you, okay? First, on the market size and the second on the technology side. First on the market size, I am not seeing in my years in the LED industry which is quite long now and anyone of their presence with anyone of our customers in any LED industry. So therefore I’m not seeing therefore any one of our customers through the work. Their focus so far has been the optical size which requires a larger disk but much thinner in height. So that’s on the market size.

On the technology side, look all this crystal growth technologies – EFG technology,- [Kochasky] or heat exchange matter are well known crystal growth technologies that are out growth from the basic crystal growth technologies. In fact about 4 years ago as part of our technology road map we also evaluated this technology. But we have decided to continue to advance in our current years to technology because we believe that our technology is much more scaleable and economical and we have evidence to show for it. So I do not believe it’s going change the landscape, but as you know there is a lot of chatter in the market about this things but I do not believe so.

Amar Zaman - Piper Jaffray

Thanks Roger and then I guess finally in terms of the supply demand for sapphire, the continued shortage, are you seeing any evidence of smaller maybe 2 or 3 or even two or two chip manufacturers, LED chip manufacturers that are having to potentially slow down or shut down lines due to lack of sapphire?

Raja Parvez

I think then in realty there is some probably some of them being impacted but major companies that we are supporting and other competitors supporting I think still they are learning but some companies probably are being impacted because of the shortage of supply. But I think in a higher level all of those companies are utilizing their resources efficiently and we and the other are supporting and that’s one of the reasons that we continue to focus very aggressively to add these capacities both at the crystal growth level and also at a polishing level because in addition to getting the revenue and supporting our customers, we as the market leader in all sapphire and especially in the larger diameter and especially 6 inch and we are also obligation to the industries so it advances and our adoption rate continues to expand.

Amar Zaman - Piper Jaffray

Thank you very much and congratulations again.

Raja Parvez – President & CEO

Thank you.

Operator

(Operator instructions). Your next question comes from the line of Lauren Stroller of Lazard Capital Markets. Please proceed.

Lauren Stroller - Lazard Capital Markets.

Hi thanks for taking for taking my call. Congratulations on the quarter. So I just had a quick question on the $71 million contract. So how should we model this?

I guess you said one of your growth. Is that growing with your capacity extension or if the customer wanted it, would you be able to fulfill it by the first half of 2011?

Bill Weissman

It’s dictated by our customers’ production schedule primarily and as we said earlier it would be less than a third of our capacity so if they needed more sooner we would be able to accommodate that.

Lauren Stroller - Lazard Capital Market

Okay, so based on less a third of your overall capacity at any given point in time, not just year?

Bill Weissman

It will vary from quarter to quarter but yeah on average it will be about that.

Lauren Stroller - Lazard Capital Market

Okay, thank you.

Operator

There are no further questions at this time I will now return the call over to management for closing remarks.

Bill Weissman

Thank you all for joining us today, very exciting quarter for Rubicon and we look forward to updating you again soon. Thank you and have a good day.

Raja Parvez – President & CEO

Thank you.

Operator

Thank you for your participation, you may now disconnect.

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Source: Rubicon Technology Q2 2010 Earnings Call Transcript
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