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Rubicon Technology, Inc. (NASDAQ:RBCN)

Q2 2012 Earnings Call

August 2, 2012 5:00 p.m. ET

Executives

Dee Johnson - Vice President, Investor Relations

Raja Parvez - President, Chief Executive Officer and Director

William Weissman - Chief Financial Officer, Treasurer and Secretary

Analysts

Avinash Kant - D. A. Davidson & Co.

Jed Dorsheimer - Canaccord

Chris Blansett - JPMorgan

Andrew Abrams - Avian Securities

Mahavir Sanghavi - UBS

Andrew Huang - Sterne Agee

Brian Lee - Goldman Sachs

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 Rubicon Technology Incorporated Earnings Conference Call. My name is Diana and I will be your coordinator for today's call. As a reminder, this conference is being recorded for replay purposes. At this time all participants are in listen-only mode (Operator Instructions) We will be facilitating a question and answer session following the presentation. I would now like to turn the presentation over to Dee Johnson, Vice President of Investor Relations. Please proceed.

Dee Johnson

Thank you, Diana. Good afternoon, everyone. We are pleased you could join us today for Rubicon's second quarter 2012 earnings conference call. With me today are Raja Parvez, Rubicon's President and Chief Executive officer, and Bill Weissman, Chief Financial Officer. 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 Bill will review our financial results in detail and discuss our outlook for the third quarter of 2012. We will then be happy to take your questions.

Today's call is being webcast through the Investor Relations section of our 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 in the Investor Relations section of 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 statements are necessarily subject to risks, uncertainties and assumptions of the future events that may not prove to be accurate. Factors that could cause actual results to differ materially from those expressed or implied include general economic conditions and the 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, Dee. Good afternoon everyone and thank you for joining us today. Revenue for the second quarter increased to $17 million from $10.2 million in the prior quarter with sales increasing for both six-inch wafers and smaller diameter core. Revenue from six-inch wafer sales increased 84% sequentially to $10.1 million and represented 59% of revenue for the quarter. Toward the end of the quarter, we resumed shipping six-inch wafers to our largest LED customer after a pause in their purchases due to excess inventory.

Also our six-inch sales to the silicon on sapphire market continued to increase, growing 62% sequentially to $7.4 million in the second quarter. Sales of 2 through 4-inch core doubled sequentially to $5.3 million in the second quarter as LED demand strengthened with increased utilization rates at most LED chip manufacturers. As expected substrate pricing remained low in the second quarter, particularly for 2 through 4-inch cores. LED demand has improved, however the industry is certainly not at full utilization in all regions.

More importantly, inventory levels at the major sapphire suppliers is being reduced but remains higher than normal which continued to keep pricing low. Gross margin was breakeven in the quarter, a sequential improvement of over 33 percentage points with increased revenue from higher margin large diameter wafer and corresponding improvement in utilization of our policing operations. And our operating loss was reduced from $6.6 million in the first quarter to $3.1 million in the second quarter. Lower 2 through 4-inch core pricing continues to be a drag on margins but we expect the pricing environment to improve as sapphire inventory levels are further reduced.

I am pleased with the growth in our six-inch wafer business in the quarter and expect additional growth in the second half of the year. While the down cycle in the LED market has delayed broader adoption of six-inch substrate among LED chip manufacturers, we saw a strong growth in the quarter from both SOS and LED market.

For those of you who are not familiar with the SOS or silicon on sapphire is a process develop by our customer to produce high performance radio frequency integrated circuits which are used in a variety of application but most notably in smartphone. It is a disruptive technology that is beginning to displace the legacy solution of multiple Gallium Arsenide chips with a single monolithically grown chip produced on a sapphire substrate. Using a six-inch sapphire wafer as a substrate, the SOS chip offers superior functionality to the legacy solution, including faster data throughput, reduced power usage, smaller form factor and reduced cross-talk.

As a result this technology is rapidly gaining market share. We have worked closely with our customer over the years and I am very pleased to see the success they are having now. Regarding six-inch adoption in the LED market as I mentioned, the recent weakness in this market resulted in low utilization rates at our customers. While most of the major LED chip manufacturers continue development work on six-inch, the focus recent has been on improving the utilization of their existing platform. Utilization rates have been gradually improving and we expect to see one or two more of the major chip manufacturers to begin using six-inch substrate in production in next year.

During the current industry cycle, we have continued to focus on developing intellectual property, reducing cost and enhancing our competitive position. We continue to extend our vertical integration upstream by rolling out our raw material preparation process and downstream by moving forward with our development of patterning capability. In addition, we continue to evolve our existing technology to enhance our capabilities and reduce cost.

For example, we recently awarded a patent for in situ crystal orientation which allows us to adjust for precise crystal planar orientation within our fabrication equipment. This results in greater precision and a more efficient lower cost process. It is important that we continue to refine our processes and add intellectual property, not only to reduce cost but also to meet our customers continually evolving specifications. This is true particularly for six-inch wafers.

We are still in the early days of adoption of six-inch wafers for the LED market and specifications for these wafers continue to develop as LED chip manufacturers gain more experience with these substrates and production. We continue to work on reducing cost, particularly in our polishing operation, through process improvement and relocating our U.S. polishing to Malaysia.

It has been a difficult cycle for the LED industry but the market is improving. This along with the strength of the SOS market has enabled us to resume growth and improve margins. We expect continued improvement in the second half of this year as our utilization improves and we continue to lower cost. During this cycle, we continue to focus on extending our vertical integration and refining our processes in order to further strengthen Rubicon’s advantage.

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

William Weissman

Thank you, Raja. Revenue for the second quarter was $17 million, a $6.8 million increase over the prior quarter revenue of $10.2 million. We saw a stronger demand in both the LED and SOS markets in the second quarter. Revenue from the LED market increased $4.5 million, sequentially to $8.4 million in the second quarter. This resulted from a combination of higher six-inch wafer and higher 2 through 4-inch core sales in the quarter.

Six-inch wafer sales for the LED market increased $1.8 million sequentially to $2.7 million in the second quarter. While revenue from 2 through 4-inch core doubled sequentially to $5.3 million in the second quarter. We had another strong quarter of growth from the SOS market, with revenue from six-inch wafers sold into that market totaling $7.4 million, a 62% sequential increase. As Raja mentioned, SOS technology continues to gain market share due to the many advantages it offers over the legacy solution.

Revenue from the optical market was softer in the second quarter and our revenue from this market was $1.2 million versus the prior quarter revenue of $1.8 million. Our gross margin was at breakeven for the quarter, 33 percentage points above the prior quarter’s gross margin. Sequential improvement was due in part to increased revenue from higher margin wafer sales and improved utilization of our polishing operations. In addition, in the first quarter we incurred extra scrap and rework expenses associated with customer specification changes.

Operating expenses in the second quarter totaled $3.1 million, slightly lower than the prior quarter total of $3.2 million, resulting in an operating loss of $3.1 million in the second quarter as compared to an operating loss of $0.6 million in the prior quarter. We recorded $2.1 million of tax benefit in the quarter. Our projected effective tax rate while in a profit, remains at 30% to 35%. However, the rate of tax benefit accrued while in a loss position, will typically be higher and will vary based on the distribution of costs between our U.S. and Malaysia operations.

Our loss per share for the second quarter was $0.06, as compared to the prior quarter loss per share of $0.15. Turning to the balance sheet and cash flow. We maintain a very strong cash position with $52 million in cash and short-term investments at June 30 with no debt. We used $3 million in the quarter. Our capital expenditures in the quarter totaled $1.8 million and our inventory balance increased by $6.5 million due primarily to a building of safety stock of raw material.

Our accounts receivable remain of high quality and our DSO has come down to 50 days for the second quarter from over 100 days in the prior quarter. Regarding our outlook for the third quarter, we expect continued strength in the SOS market. The LED market has improved, however we do not expect the LED market to strengthen significantly in the third quarter. Pricing for 2 through 4-inch cores will likely remain low for another quarter or two as sapphire inventory levels continue to get worked down at a slower pace than originally expected.

We expect revenue in the third quarter of between $18 million and $21 million with a heavier mix of six-inch wafers. Gross margin should be positive in the third quarter but will not likely cover all of our operating expenses. Consequently we expect a loss per share of between $0.02 and $0.05 in the third quarter based on $22.5 million shares outstanding and a 50% tax benefit. I would now like to turn the call back over to Raja for some closing comments and then we would be happy to take your questions.

Raja Parvez

Thank you, Bill. We saw the beginning of a recovery of the LED market in the quarter along with continued strong demand from the SOS market. The strength of our technologies has allowed us to earn a leadership position in supporting emerging technologies like silicon and sapphire and in the progression of the LED market to larger substrates.

We continue to focus on enhancing our existing platforms and developing new products. Projects like our in-house raw material production and in situ alignment which has just been patent, will allow us to improve quality while reducing cost. Our development of pattern capability is on track and we expect to be the first to offer large diameter pattern sapphire substrates next year. We have also been developing a new crystal growth technology for the optical market which will produce very large thick rectangular windows. We will be providing more details on that technology in coming quarter.

The markets we serve are very young and will likely continue to see volatility. However, by focusing on reducing cost and evolving our products through technology, we will maintain our market leadership position.

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

Question-and-Answer Session

Operator

(Operator Instructions) First question comes from the line of Avinash Kant of D. A. Davidson & Co.

Avinash Kant - D. A. Davidson & Co.

So a few questions. The first one starting from the SOS market. It looks like of course you are seeing a lot of traction and you talked about continued growth in that business. So should we think of it, this business grew quite a bit actually sequentially in this quarter, do you expect a sequential growth going forward or do you expect this business to stay at these levels for the rest of the year? Could you just cope out a little bit in terms of how big this opportunity could be for you?

William Weissman

Well we have a nice bump obviously in the second quarter. We do expect some additional increase in the second half but certainly not at the same rate.

Avinash Kant - D. A. Davidson & Co.

So you are saying second half will be better than the first half or second half will be higher than the current run rate in the second quarter?

William Weissman

Well both. What we are saying, the rate of growth will be certainly much less than it was in the first couple of quarters here.

Avinash Kant - D. A. Davidson & Co.

And any idea in terms of the scope of this business? How big this market could be for you over the next few years?

Raja Parvez

Well, as this is a very disruptive technology and most of our customer devices are already integrated in major smartphone manufacturers. And we expect a significant continued growth in this technology. And as you know, we have been working with this customer for number of years. In many cases we have co-developed this six-inch SOS polishing product for them and we have very good relationship with them at all levels. And I believe this technology will continue to grow, continue to penetrate more applications and markets and I believe we will continue to see strength in this market.

Avinash Kant - D. A. Davidson & Co.

So, Raja, do you see anybody else getting into the same market who could use your wafers with similar chips?

Raja Parvez

Well at this point this customer has the complete IP position of this technology. However, future remains unknown at this point.

Avinash Kant - D. A. Davidson & Co.

Are you the sole supplier of wafers to them?

Raja Parvez

No, we are not but we are the majority supplier to them.

Operator

Your next question comes from the line of Jed Dorsheimer with Canaccord.

Jed Dorsheimer - Canaccord

I was wondering if you could just talk about utilization. I jumped on late so Bill, you may have already done this. But what was the utilization in both polishing and [ingot] turn in the quarter?

William Weissman

Well, our crystal growth hasn’t changed, it’s still in the 80% to 85% range. In polishing we were in the 30% to 40% range. It should be around 60% to 65% in Q3.

Jed Dorsheimer - Canaccord

Okay. And then just on the silicon on sapphire. What level of feedback are you getting from [program] Specifically, I am just curious in terms of -- you are making sure that there is not an inventory build in front of a large ramp.

Raja Parvez

Well at that point, first of all we can't name the customer but however at this point we have not seen any inventory levels other than a normal safety stock they have. And we have a good visibility through the second half of this year but that’s the only data we have at this point.

Jed Dorsheimer - Canaccord

And the rework that was attributed to your largest six-inch customer?

William Weissman

On the LED side, yes.

Jed Dorsheimer - Canaccord

Okay. And so that’s behind you at this point or is there anymore that needs to occur?

William Weissman

No, that’s behind us now.

Jed Dorsheimer - Canaccord

And have they started are they meeting -- for Q3 there is minimums associated with the contracts for Q3 and Q4, correct. Are we at those levels at this point?

William Weissman

There has not been any change in the contract.

Operator

Your next question comes from the line of Chris Blansett with JPMorgan.

Chris Blansett - JPMorgan

Hey guys thanks for taking my question. Raja, you mentioned that inventory levels for Sapphire still remain high and obviously your inventory levels went up in the quarter as well. So what are your thoughts on the inventory level trajectory in Q3 and general thought process of how long it’s going to take to get them back to more normalized levels.

William Weissman

Well, I will comment on our inventory levels and Raja can comment on the industry. 5 of the $6 million increase in our inventory was for raw materials which we are intentionally building a safety stock on. We will slow that down now that we have a pretty good supply. We reduced our core inventory in the quarter because we sold so much volume of core. And our in-process wafer inventory went up just because the volumes are increasing. So that’s the inventory situation at Rubicon and Raja can comment on the market.

Raja Parvez

Yeah, as far as the six-inch is concerned both LED and SOS, there is no buildup of inventory as I earlier mentioned. It’s just a safety stock that major customers are having. And as you know that we have the majority market share both in SOS and six-inch LED market as well. However, there is an inventory especially at the incumbent sapphire producer from 2 through 4-inch. And the combination of the lower demand and the inventory at the incumbent sapphire producer is keeping the pricing depressed for 2 through 4-inch. But based on the current run rate, the utilization rate in Taiwan is quite high. In China is increasing. However, the utilization rate in Japan as well as in Korea and the other market is still not significant higher. So based on this current run rate we project that inventory should be depleting through the rest of the year.

Chris Blansett - JPMorgan

And then I want to ask about your CapEx expectations for the year, just to make sure we are still on track for the build out of the shelf for the second crystal growing facility? Or the third.

William Weissman

You know it’s both our crystal growth and polishing facilities are pretty much full now. Most of the CapEx we will be spending in the second half is concentrated around the raw material preparation process and patterning process.

Chris Blansett - JPMorgan

Okay. And then one last question from me is, I guess could you just give us an update on your progress of reducing your six-inch wafer costs?

Raja Parvez

Well, first of all as we mentioned earlier that we just have received a patent approval on some of the improvement in the processing. And that is one of the few examples, we have two more patents pending. But we are implanting more streamlined manufacturing processes. We are also implementing more better processes and technology and that’s continuously growing through, but also we are relocating more and more operations from U.S. to Malaysia and will further reduce the cost. And of course we are also qualifying over Malaysia facility for our silicon on sapphire. Because right now, literally all of the products of SOS is manufactured in the U.S., but we are working with a customer and their supplier to progressively qualify that product in that also and that should improve.

Operator

Your next question comes from the line of Andrew Abrams with Avian Securities.

Andrew Abrams - Avian Securities

Just two quick questions. The move from U.S. to Malaysia for the SOS product. Do you have some timeframe on when you think that’s going to happen? Is that going to happen before the end of this year?

Raja Parvez

Well this is a very -- as we mentioned this is a disruptive and very refined technology, it will take some time to qualify. We cannot predict the timeline but we are working with a customer. And typically for chip qualification it takes on the order of anywhere from three to six months. But we are working very diligently to qualify that and we will give you the progress next quarter.

Andrew Abrams - Avian Securities

Okay. And the six-inch that you are doing under contract, the only bookings that were done in second quarter were in June, is that correct?

William Weissman

Yes, we started shipping in June.

Andrew Abrams - Avian Securities

And so you will be shipping a consistent amount on each month going forward or each quarter going forward?

William Weissman

It won't be exactly consistent but it’s roughly the same.

Operator

Your next question comes from the line of Stephen Chin with UBS.

Mahavir Sanghavi - UBS

This is Mahavir Sanghavi for Stephen Chin. I was just wondering if you could share your thoughts on pricing by region in the quarter. Our own checks in China found that the sapphire prices were up about 10%. So wondering if there are any other regions that have weaker pricing than perhaps China.

William Weissman

Well, our pricing on average was basically the same as it was in the first quarter. We are not seeing any meaningful movement quite yet. As Raja mentioned, the Sapphire inventory levels are still a little bit too high and we expect there will be some improvement but it’s probably going to take another quarter or two before we really see that.

Mahavir Sanghavi - UBS

Got it. And then what were sales, direct sales to China in the second quarter?

William Weissman

Directly to China was about 2 million.

Mahavir Sanghavi - UBS

2 million.

Raja Parvez

Also remember that for a number of years we have been providing two and three four-inch core to other markets, specially to Taiwan, because that’s largest two-inch market. But majority of that product actually ends up in China market. So indirectly we have providing, supporting the China market for quite some time.

Mahavir Sanghavi - UBS

And one last question. The overall recovery -- I am wondering I you believe that China is the leading factor given the numbers of MOCVD installs in China. I mean our checks are showing 35% growth q-over-q in sapphire demand in China in second quarter.

Raja Parvez

While certainly the utilization rate among chip manufacturers is increasing China, obviously Taiwan is quite high. However, the utilization rate in other markets is still significantly lower than this should be. So we expect a growth there but it is a function of the overall market demand in all sectors which is going to improve.

Operator

Your next question comes from the line of Andrew Huang, Sterne Agee.

Andrew Huang - Sterne Agee

So the first question is, the rework for your biggest customer, is that related to defects or to flatness?

Raja Parvez

No, it was neither to defect nor to flat. This was just when we had an initial agreement with them we negotiated certain specifications. After, when we renegotiated the contract, we negotiated the new specifications and we had already manufactured the product based on the prior specifications. And what we did, we had to rework some of the wafers to bring them to the new specifications.

William Weissman

Yeah. And in the process, in the rework some become too thin and needed to be scrapped. So that’s where the scrap came from.

Andrew Huang - Sterne Agee

Got it. Okay. And then it seems like the demand for PSS is pretty hot right now. So my question is, when you do offer this service, it is going to be on two-inch and four as well or only at six-inch?

Raja Parvez

At this point we are focusing only on the larger diameter.

Andrew Huang - Sterne Agee

So meaning six-inch.

Raja Parvez

Yes.

Andrew Huang - Sterne Agee

Now, correct me if I am wrong, but doesn’t your biggest customer already have in-house PSS capability?

Raja Parvez

Well, many of the LED chip manufacturers are moving towards the PSS technology because of this benefits. Some of them do have internal capability, some of them do not. However, as long as the product that we offer, it is different product and cost effective. And we have been talking to the customers for quite some time before launching this product, we believe we will be able to introduce this product in a meaningful way to them.

William Weissman

The capacity we will be installing, we will be capable of doing 4-inch as well. In case the six-inch market is still -- the adoption rate is still slow. So we will be able to do 4-inch if necessary. But our plan is to focus on six-inch.

Andrew Huang - Sterne Agee

And could you give us an idea what kind of a price premium you can expect for offering a PSS wafer versus a plain wafer?

William Weissman

Well, it depends on the size, but you can get in the 50% or so from revenue/

Raja Parvez

As you know, much of the data in the market so far has been on a two-inch. And typically on a two-inch you get 50% on the order plus premium on that product. As far as the larger diameter is concerned, for four-inch there is very limited right now availability and the use. And of course six-inch, none. Nobody has that product available yet. So there will be some premium but as far as the exact percentage, it will be after the product is introduced and qualified.

Andrew Huang - Sterne Agee

Okay. And can you give us an update on where you are on capacity in TIE exiting the June quarter in terms of crystal growth? And then expectations exiting the December quarter?

William Weissman

Well, our newest plant is basically full, although some of the furnaces we have not turned on yet. And as we have said, with that new plant we would be at about $12 million TIE per year. We are about at 85% utilization rate so we are written around 10 million per year right now.

Andrew Huang - Sterne Agee

Okay. So you are right now exiting the June quarter around -- you are around 10 million, you said?

William Weissman

Right.

Andrew Huang - Sterne Agee

And then, how about by the end of the year?

William Weissman

Well, we can turn those furnaces on when we need them. So once the market picks up we will turn them on and we well be at 12 as soon as needed.

Andrew Huang - Sterne Agee

Okay. And then with the plans that you have to add more crystal growth for capacity? Do you have an idea where that might be exiting 2013?

William Weissman

Well, we have purchased land. We have the site selected and we have purchased the land. The timing of breaking ground, starting that facility hasn’t been set yet. But it will take us, depending on the time of the year we start, anywhere between six and 12-months to get that facility to the point where we are adding additional furnaces. But we will make that call as to one to start that facility as the market picks up.

Andrew Huang - Sterne Agee

One last question. You mentioned large rectangular windows. When you say large, what does large mean?

William Weissman

Well it’s a three feet by two feet kind of a....

Raja Parvez

You know there are different sizes of the requirement of the customer but the largest one at this point requires about 16-inches by 36-inches.

Operator

Next question will come from the line of Brian Lee, Goldman Sachs.

Brian Lee - Goldman Sachs

On the earlier CapEx question, didn’t hear if you gave a specific target for the year. Is there a CapEx number we should be thinking about for the share?

William Weissman

It’s around $18 million to $22 million or so.

Brian Lee - Goldman Sachs

18 to 22. Okay. Great. And then, I guess, I was wondering on your six-inch contracted customer, given that the volume started ramping in June, I would have thought that 3Q revenue guidance would be higher than it is. Is it just more concentrated in 4Q shipments or is there something else going on that maybe we are not seeing that volume growth Q-on-Q.

William Weissman

No. Given the pricing has not improved for the smaller diameters yet, and we did clear out some of the inventory for those small diameters. Our focus is going to be more on the larger diameter wafers in the third quarter. So core revenues will be down in the third quarter.

Brian Lee - Goldman Sachs

Okay. So that’s the offset. Great. And then just lastly on that inventory topic. How much is whip versus finished goods right now. And given that -- it sounds like you are planning to maybe ramp capacity utilization here in the next couple of quarters. What's the process around inventories and how they will trend here through the end of the year.

William Weissman

Actually most of the inventory is raw material and [pool] inventory. We have some whip on the wafer side and some finished core, but most of it is in raw material and pool.

Brian Lee - Goldman Sachs

Okay. And on the capacity utilization side?

William Weissman

Well, again we said our crystal growth utilization in the third quarter will be the same. And in the wafer side, our polishing utilization should be up to 60% to 65% in the third quarter.

Brian Lee - Goldman Sachs

Okay. So you guys are confident that even on slightly higher utilization you will see inventory trends move down through the year.

William Weissman

Well, the core inventory may build again in the third quarter. We have gotten now the safety stock we want on the raw material so we will be easing up on that. We won't be adding. We had been adding several million dollars per quarter in additional raw material inventory. So it may go up but it won't go up significantly between now and the end of the year.

Operator

(Operator Instructions) Our next question comes from the line of Ahmar Zaman, Piper Jaffray.

Unidentified Analyst

Hi, this is [Sean] on for Ahmar. Could you, Bill and Raja, give us an update on any progress in diversifying your six-inch customer base and any sort of timing that might be associated with that?

Raja Parvez

Well it is all the function of the demand. Currently, because of the demand the deployment and migration to 6-inch platform has delayed. And that’s why the current customers are using their existing infrastructure. However, each and every one of them continue to work on developing in the six-inch and we continue to work. So as soon as the demand cycle improves, I would expect that their migration activities will also intensify moving to larger diameters.

Unidentified Analyst

Great. And can you give us an update on any progress that you guys might be making in moving to beyond the six-inch higher diameter wafer. Any timing around that as well?

Raja Parvez

Well, it’s hard to predict the timing but however we have been selling some R&D wafers both to LED and SOS and other power devices for quite some time. And time to time our entire platform, crystal growth fabrication, polishing is capable of producing 8-inch at a volume. So we have been providing products, but again, because of the demand, if demand would have continued than our expected migration to 8-inch see some more faster. However, first we have to go the six-inch but 8-inch, but again, R&D levels will continue to work with several customers in not only LED but also in SOS and also the power devices.

Unidentified Analyst

Great. And just one other question. Can you give us a sense of how much your core sales have been as a percentage of sales historically and how you see them reaching -- how do you see them reaching historical level?

William Weissman

Well, obviously six-inch is a relatively new product. At one point not too long it was a 100% of our sales. Last year it started to get to where we got half of our sales and now as we said in the last quarter, it was 64% of substrate sales. So it’s a major percentage of our revenue at the moment and we think our model even as the market strengthens would be that it should probably be 60% of our revenue coming from the six-inch product going forward.

Operator

And we have a follow up question on the line from Andrew Huang, Sterne Agee.

Andrew Huang - Sterne Agee

Can you just share with us, of your 2 through 4--inch core business, how much of that was two-inch?

William Weissman

About half. A little more than half of it.

Operator

And that concludes the question and answer portion for today. I would now turn the call back to Dee Johnson, Vice President, Investor Relations for any closing remarks.

Dee Johnson

Thank you, and thanks everyone for joining us today. We appreciate your interest and we look forward to speaking with you again soon. This concludes the Rubicon second quarter conference call.

Raja Parvez

Thank you.

William Weissman

Thank you.

Operator

Thank you, ladies and gentlemen, you may now disconnect. Have a great day.

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