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  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

12/24/03  Emcore Corp                       10-K        9/30/03    8:356                                    Capital Printing...01/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                       HTML  1,468K 
 2: EX-14.1     Code of Ethics                                      HTML     10K 
 3: EX-21.1     Subsidiares of the Registrant                       HTML      5K 
 4: EX-23.1     Consent of Deloitte & Touche Llp                    HTML      9K 
 5: EX-31.1     Certificate of Chief Executive Officer              HTML     14K 
 6: EX-31.2     Certificate of Chief Financial Officer              HTML     14K 
 7: EX-32.1     Certificate of Chief Executive Officer              HTML      8K 
 8: EX-32.2     Certificate of Chief Financial Officer              HTML      8K 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2003

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 0-22175

EMCORE Corporation

(Exact name of registrant as specified in its charter)

New Jersey (State or other jurisdiction of incorporation or organization)				22-2746503 (I.R.S. Employer Identification No.)

145 Belmont Drive, Somerset, NJ 08873
(Address of principal executive offices) (zip code)

(732) 271-9090
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes        No    

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes         No    

The aggregate market value of common stock held by non-affiliates of the registrant as of March 31, 2003 was approximately $45,545,163 (based on the closing sale price of $1.65 per share).

The number of shares outstanding of the registrant's no par value common stock as of December 12, 2003 was 38,244,800.

EMCORE Corporation

FORM 10-K
For the fiscal year ended September 30, 2003

INDEX

								Page
PART I
Item 1.				Business					1
Item 2.				Properties					31
Item 3.				Legal Proceedings					31
Item 4.				Submission of Matters to a Vote of Security Holders					31
PART II
Item 5.				Market for Registrant's Common Equity and Related Shareholder Matters					32
Item 6.				Selected Financial Data					33
Item 7.				Management's Discussion and Analysis of Financial Condition and Results     of Operations					35
Item 7A.				Quantitative and Qualitative Disclosures About Market Risk					52
Item 8.				Financial Statements and Supplementary Data					53
				Consolidated Statements of Operations for the years ended September 30,     2003, 2002 and 2001					53
				Consolidated Balance Sheets as of September 30, 2003 and 2002					54
				Consolidated Statements of Shareholders' Equity for the years ended     September 30, 2003, 2002 and 2001					55
				Consolidated Statements of Cash Flows for the years ended September 30,     2003, 2002 and 2001					56
				Notes to Consolidated Financial Statements					58
				Independent Auditors' Report					78
Item 9.				Changes in and Disagreements with Accountants on Accounting and     Financial Disclosures					79
Item 9A.				Controls and Procedures					79
PART III
Item 10.				Directors and Executive Officers of the Registrant					79
Item 11.				Executive Compensation					81
Item 12.				Security Ownership of Certain Beneficial Owners and Management					86
Item 13.				Certain Relationships and Related Transactions					87
Item 14.				Principal Accounting Fees and Services					87
PART IV
Item 15.				Exhibits, Financial Statement Schedules and Reports on Form 8-K					89
				SIGNATURES					92

Forward-Looking Statements

This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements are based largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. These forward looking statements may be identified by the use of words such as "expects", "anticipates", "intends", "plans", "believes", "estimate", "target", "may", "will" and variations of these words and similar expressions. These forward-looking statements are subject to business, economic and other risks and uncertainties, and actual results may differ materially from those discussed in these forward-looking statements. Factors that could contribute to these differences include, but are not limited to, those discussed under "Risk Factors", "Forward-Looking Statements" and elsewhere in this report. The cautionary statements made in this report should be read as being applicable to all forward-looking statements wherever they appear in this report. This discussion should be read in conjunction with the Consolidated Financial Statements, including the related footnotes. These forward-looking statements include, without limitation, any and all statements or implications regarding:

	•	The ability of EMCORE Corporation (EMCORE) to remain competitive and a leader in its industry and the future growth of EMCORE, the industry and the economy in general;

	•	difficulties arising from the separation of the TurboDisc business from EMCORE's ongoing business lines;

	•	difficulties in integrating recent or future acquisitions into EMCORE's operations;

	•	the expected level and timing of benefits to EMCORE from its restructuring and realignment efforts, including:

	•	expected cost reductions and its impact on EMCORE's financial performance,

	•	expected improvement to EMCORE's product and technology development programs,

	•	the belief that restructuring and realignment efforts will position EMCORE better in its current business environment and prepare it for future growth with increasingly competitive new product offerings and improved long-term cost structure; and

	•	guidance provided by EMCORE regarding its expected financial performance in current or future periods, including, without limitation, with respect to anticipated revenues for any period in fiscal 2004 and subsequent periods.

These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected, including without limitation, the following:

	•	The disposition of our TurboDisc business may result in decreased revenues going forward as well as additional difficulties arising from the separation of its operations from our ongoing operations; and

	•	other risks and uncertainties described in EMCORE's filings with the Securities and Exchange Commission (SEC) (including under the heading "Risk Factors" in this Annual Report), such as:

	•	cancellations, rescheduling or delays in product shipments;

	•	manufacturing capacity constraints;

	•	lengthy sales and qualification cycles;

	•	difficulties in the production process;

	•	changes in semiconductor industry growth;

	•	increased competition; and

	•	delays in developing and commercializing new products.

We assume no obligation to update the matters discussed in this Annual Report, except as required by applicable law or regulation.

PART I

Item 1.    Business

For specific information about our Company, our products or the markets we serve, please visit our website at http://www.emcore.com. The information on EMCORE's web site is not incorporated by reference into and is not made a part of this report. All of our SEC filings are available free of charge on our website.

Company Overview

EMCORE Corporation, a New Jersey corporation established in 1984, offers a broad portfolio of compound semiconductor-based components and subsystems for the rapidly expanding broadband and wireless communication markets and the solid-state lighting industry. EMCORE continues to expand its comprehensive product portfolio to enable the transport of voice, data and video over copper, hybrid fiber/coax (HFC), fiber, satellite and wireless communication networks. The company is building upon its leading-edge compound semiconductor materials and device expertise to provide cost-effective components and subsystems for the cable television (CATV), telecommunications, data and storage, satellite and wireless communications markets. EMCORE supports these end markets through its EMCORE Fiber Optics, EMCORE Photovoltaics and EMCORE Electronic Materials and Devices product lines. Through its 49% ownership participation in GELcore, LLC, EMCORE plays a vital role in developing and commercializing next-generation LED technology for use in the general illumination market. Our target markets and main products that support these markets include:

CATV

Telecommunications

Data and Storage

Satellite Communications

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Wireless Communications

Solid-State Lighting

Acquisitions and Divestitures

Over the past twelve months, EMCORE has refocused its market and product strategy to address high growth opportunities for its compound semiconductor based components and subsystems in the CATV, telecom, data and storage, satellite and wireless communications markets. In addition to developing its internal capability to develop and manufacture products for these markets, EMCORE has expanded its portfolio of communications products and technologies through a series of strategic acquisitions:

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Management believes that the sale of the TurboDisc systems business was a critical step in reorienting EMCORE's market and product focus. The capital equipment business enabled the Company to develop the critical materials science expertise that has become the cornerstone of its compound semiconductor based communications products and our sole business focus. EMCORE retained a license to all systems related intellectual property and ownership of all its process and device technology. Moreover, the sale of TurboDisc business strengthened EMCORE's balance sheet and helped provide the resources necessary to implement its communications strategy.

As a result of these transactions, the focus of the discussion in this Annual Report will be on our compound semiconductor-based components and subsystems for the broadband and wireless communication markets and the solid-state lighting industry, rather than on our systems segment. Although the systems segment did represent a significant portion of our business and results of operations in fiscal 2003, results from operations in fiscal 2004 will be classified as "discontinued operations" and no impact thereafter. Accordingly, we believe that emphasizing our continuing businesses in the compound semiconductor related components and subsystems products will be more meaningful for investors.

Compound Semiconductor Industry Overview

Recent advances in information technologies have created a growing need for efficient and high-performance electronic systems that operate at very high frequencies, require higher transmission rates, require increased storage capacity, have augmented computational and display capabilities and can be produced cost-effectively in commercial volumes. In the past, manufacturers of electronic systems have relied on advances in silicon semiconductor technology to meet many of these demands; however, the new generation of high-performance electronic and optoelectronic applications require certain functions that are generally not achievable using silicon-based components. Advantages of compound semiconductor devices over traditional silicon devices include:

Compound semiconductor devices can also be combined into integrated circuits, such as transmitters, receivers and alphanumeric displays. Electronics manufacturers are increasingly integrating compound semiconductor devices into their products to achieve higher performance in applications targeted for a wide variety of communication markets. Examples of such applications enabled by compound semiconductor devices include:

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The systems that enable these applications consist of many component and subsystems that incorporate individual compound semiconductor devices. Companies that own unique leading-edge technologies will be able to continue to provide value-added components, subsystems and turnkey systems to meet the communication requirements of the future.

The diagram below shows the individual building blocks that enable the final user application. The trend in the industry is for companies to supply more and more of the entire pyramid in order to stay cost competitive and improve operating margins. EMCORE focuses its products in the materials, components and subsystems layers.

EMCORE's Strategy

EMCORE's objective is to maximize shareholder value by building upon its leading-edge compound semiconductor materials and device expertise to provide cost-effective components and subsystems for the CATV, telecom, data and storage, satellite and wireless communications markets. EMCORE's products enable the transport of voice, data and video over copper, HFC, fiber, satellite and wireless communication products. The key elements of EMCORE's strategy include:

The model of purchasing components from multiple vendors results in too many layers of margin stack-ups such that the final integrated subsystem is no longer cost competitive. We believe the trend in the component and subsystem industry is towards a vertically integrated structure in which key technologies are produced internally. By having the know-how and intellectual property to internally produce and supply compound semiconductor products, component and subsystem companies can stay ahead of the competition in both performance and cost effectiveness.

EMCORE continually leverages its proprietary core technology to develop compound semiconductor products for multiple applications in a variety of markets. Building upon the compound semiconductor materials expertise into components and subsystems products is a key focus of EMCORE's ongoing strategy. Our internally designed and manufactured VCSELs, digital DFB lasers, PIN and APD photodiodes are the optical components in our TOSA and ROSA products as well as our data and telecommunications receivers, transceivers and transponders. Similarly, our internally designed and manufactured analog DFB and FP lasers and PIN photodiodes are the optical components in our CATV transmitters, receivers and FTTx transceivers.

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EMCORE's strategy is to target potential high growth market opportunities where performance characteristics and high volume production efficiencies can give compound semiconductors a competitive advantage over other devices. Historically, while technologically superior, compound semiconductors have not been widely deployed because they are more expensive to manufacture than silicon-based semiconductors and other existing solutions. EMCORE believes that as compound semiconductor production costs are reduced, new customers will be compelled to use these products because of their higher performance characteristics. For example, EMCORE focuses its efforts in high-growth areas in communication infrastructure by providing complete solutions based on widely accepted platforms such as Synchronous Optical Network (SONET), Asynchronous Transfer Mode (ATM) and Gigabit Ethernet.

With the increased demand for high bandwidth services such as Internet, video-on-demand, on-line gaming and high definition television (HDTV), more and more systems are relying on optics to transport the signals. EMCORE is uniquely positioned to leverage its compound semiconductor expertise in the area of VCSELs, DFB lasers, PIN/APD detectors into value-added subsystems that meet the market demand.

Consistent with our strategy of pursuing market opportunities in which management believes that future growth will be strong, we evaluated our TurboDisc systems division and noted that the market for MOCVD reactors had become saturated in recent years with tremendous price competition on every new system sale. Accordingly, we sold the TurboDisc division as described above. We did, however, retain significant intellectual property rights in the TurboDisc technology and obtained favorable terms for future purchases of TurboDisc systems and related components.

III.    Pursue Strategic Acquisitions and Partnerships with Industry Leading Companies.

EMCORE seeks to identify and develop long-term relationships with leading companies in each of the industries it serves. EMCORE develops these relationships in a number of ways that include long-term, high-volume supply agreements, joint ventures, acquisitions and other arrangements. In January 1999, General Electric Lighting and EMCORE formed GELcore, a joint venture to develop and market HB-LED lighting products. Since its inception, GELcore has had a compound annual growth rate (CAGR) of 23% with annual revenue approaching $55 million. General Electric Lighting and EMCORE have agreed that this joint venture will be the exclusive vehicle for each party's participation in solid-state lighting. Recently, acquisitions have been a focus in order to enhance technologies. Over the past two years, the acquisitions listed below have expanded not only our materials expertise, but also our components and subsystem technologies:

EMCORE is currently considering additional strategic acquisitions to acquire new technologies and products to broaden our market penetration in the communications sector.

Through substantial investment in research and development, EMCORE seeks to expand its leadership position in compound semiconductor based communications products and subsystems. EMCORE works with its customers to enhance the performance of its processes, materials science and fiber optic module design expertise, including the development of new low-cost, high-volume wafers, components and subsystems for its customers. In order to remain a leader in our market segments, EMCORE not only addresses our customers' current needs, but we also work with them regarding their evolving requirements to remain designed into their product lifecycle. In addition, EMCORE's

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development efforts are focused on continually lowering the production costs of its products. For example, EMCORE recently released the latest version of its high-efficiency advanced triple junction solar cells, which now incorporates a monolithic integrated diode, a technology which is a more cost effective and robust solution for satellite integrators.

Management is committed to reducing EMCORE's cost structure by lowering the breakeven points for each of its product lines. In fiscal 2002, EMCORE proceeded with a restructuring program, consisting of the realignment of all engineering, manufacturing and sales/marketing operations, as well as workforce reductions. Management believes that these cost reductions saved EMCORE at least $5.0 million per quarter in fiscal 2003. EMCORE also essentially eliminated all outside contractors and significantly reduced overall expenditures for materials, software and capital assets. As part of the ongoing effort to cut costs, EMCORE also implemented a program to focus research and development efforts on projects that can be expected to generate returns within one year. As a result, EMCORE has been able to reduce overall research and development costs without, we believe, jeopardizing future revenue opportunities. To improve gross margins in fiscal 2004, product lines will be transferred to contract manufacturers for high volume production and management will implement additional programs to improve manufacturing process yields.

EMCORE's Products

The following chart summarizes (i) our products, (ii) the markets to which those products are directed, (iii) applications in which our products are used, and (iv) certain benefits and characteristics of compound semiconductor devices:

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Products

Market

Representative Applications

Benefits/Characteristics

DFB, FP Lasers Photodetector Head-end transmitters Analog video receivers

CATV

Cable Television (CATV) Hybrid Fiber Coax networks Within Customer Premise     Equipment (CPE)

Increased network capacity Increased data transmission speeds Increased bandwidth Lower power consumption Low noise video receive Increased transmission distance

VCSEL components DFB and FP Lasers and optical receivers RF materials Photodiode Optical transceivers VSR transponders Passive optical     network (PON) transceivers

Telecommunications

High capacity fiber optic lines Long reach and metro networks Fiber to the premise (FTTx) Very Short Reach (VSR) links     including OC-768, OC-192, OC-48. SONET and SDH networks.

Increased data transmission speeds Increased optical launched power to enable longer     distance reach Lower power consumption Higher bandwidth density

VCSEL components DFB, FP Lasers Photodetector RF devices &     materials VSR Transponders XENPAK, X2, XFP transceivers Parallel optical modules

Data and Storage

High-speed fiber optic networks     and optical links (including Infiniband, Ethernet, Fibre Channel networks). Copper replacement or extention     products in the data center Supercomputing High performance computing     (HPC) systems Storage Area Networks (SAN) Network Attached Storage (NAS)

Increased network capacity Increased data transmission speeds Increased bandwidth Lower power consumption Improved cable management over copper     interconnects Increased transmission distance Lowest cost optical interconnections for     massively parallel muti-     processors

Solar cells and panels RF materials SATCOM subsystems

Satellite communications

Power modules for satellites Satellite to ground     Communication

Radiation tolerance Conversion of more light     to power than silicon Reduced launch costs Increased bandwidth

RF and electronic materials RF and electronic devices Optical transmitters for remoting

Wireless communications

Cellular telephones Pagers PCS handsets Direct broadcast systems PDAs Remoting

Increased network capacity Lower power consumption Reduced network congestion Extended battery life Improved signal to noise performance

HB-LEDs Miniature lamps

Solid-State Lighting

Flat panel displays Solid state lighting Outdoor signage and displays Traffic signal

Lower power consumption Lower temperature operation Longer life

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The following chart depicts some of our products as well as the application in which our customers use them.

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EMCORE's Product Lines

Fiber Optics

Over the past several years, communication networks have experienced dramatic growth in data transmission traffic due to worldwide Internet access, e-mail and e-commerce. As Internet content expands to include full motion video on demand (including high definition television or HDTV), multi-channel high quality audio, online video conferencing, image transfer, online gaming and other broadband applications, the delivery of such data will place a greater demand on available bandwidth. The bulk of this traffic is already routed through the optical networking infrastructure used by local and long distance carriers as well as Internet service providers. Optical fiber offers substantially greater bandwidth capacity, is less error prone and is easier to administer than copper wire.

EMCORE's fiber optics group manufactures high-speed optical transmitter modules, receiver modules and transponders utilizing EMCORE's leading-edge VCSEL and PIN photodiode array components for the data communications and telecommunications markets. EMCORE's modules, designed to help solve the data bottle necking problems for distances under 300 meters in central office and point-of-presence environments, provide a cost effective alternative to more costly comparable serial interconnects and are targeted to replace bulky copper cabling solutions. Growing markets that will benefit from these cost-effective short reach products include the 10G Ethernet and HPC or "Super Computing" markets. As summarized in the table below, EMCORE has positioned itself as a component and subsystem manufacture that services a significant portion of the digital and analog communications market. Our main products include short wavelength (850 nm) VCSELs, long wavelength (1310 nm and 1550 nm) DFB and FP lasers, PIN and APD photodetectors and optical subsystems that include transmitters, receivers, transceivers and transponders.

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Short Wavelength (850nm) VCSELs

EMCORE designs, develops and manufactures high-speed VCSELs and PIN photodiode components and subassemblies for the data communications and telecommunications markets. EMCORE offers a complete product line of VCSEL and PIN photodiode solutions, including bare die, packaged components and optical subassemblies for integration into Gigabit Ethernet, Fibre Channel, Infiniband, WDM, ATM systems, and high-speed telecom applications, including VSR OC-192 and high speed optical backplanes.

VCSELs are revolutionary compound semiconductor micro laser diodes that emit light vertically from the surface of a fabricated wafer. They combine the ability of batch process and on-wafer tests like LEDs and the superior electro-optical performance of traditional edge-emitting lasers. In addition, the cylindrical laser beam profile allows an easy and efficient coupling of the light into a multi-mode fiber. The manufacturability for both wafer processing and packaging enables a cost-effective high-bandwidth fiber optic communication solution.

VCSELs have many advantages, including ultra-high modulation rates for advanced information processing, extremely low power consumption, high fiber optic coupling efficiencies, circular output beams and photolithography-defined geometries. EMCORE's strategy is to capitalize on its oxide VCSEL manufacturing platform and expertise, by providing the industry with 1 Gb/s, 2.5 Gb/s, 10 Gb/s (OC-192), and 40 Gb/s (OC-768) solutions through single-channel serial, multi-channel parallel or WDM approaches. Our customers combine VCSEL technology with custom integrated circuits (IC) and system level designs for the final transceiver package. This package usually consists of a VCSEL, detector, a laser driver and various other electronic components all connected via a printed circuit board. This board is environmentally sealed, protected, and configured into the final transceiver product. Leading electronic systems manufacturers are integrating VCSELs into a broad array of end-market applications including Internet access, digital cross-connect telecommunications switches, Infiniband optical bus, fiber optic switching and routing, such as Gigabit Ethernet and storage area networks (SAN).

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Long Wavelength (1310 nm and 1550 nm) DFB and FP Lasers

Recently, cable operators and traditional telephone service providers have been competing with each other to offer the lowest price for unlimited "triple play" (voice, data and video) communications through one cable. As Multi-System Cable Operators (MSOs) offer "triple play" services over CATV systems, Regional Bell Operating Companies (RBOCs) have responded by offering "triple play" services from the deployment of new FTTx systems.

EMCORE's newly acquired Ortel division designs, develops and manufactures high-speed, long-wavelength edge emitters based on DFB or FP technologies. These lasers are used for longer reach applications in the 2km, 10km, and 40+km distances. These devices are packaged into subsystems and used to transmit CATV or FTTx signals in the forward path from the central office to the subscriber and in the return path back to the central office.

The advantage of the longer wavelength (i.e., 1310 nm, 1490 nm and 1550 nm) and narrow spectral width (in the case of the DFB laser) is the reduced absorption and dispersion in the optical fiber. This results in increased distances between repeaters or amplifiers and saves the service providers in cost of deployment.

Through its Ortel division, EMCORE also manufactures and sells a line of fiber optic Satcom transmitters, subsystems and systems to transport wideband microwave signals between satellite base stations and antenna dishes.

Photodetectors (PIN and APD)

Photodetectors are discrete semiconductor devices that detect light in order to convert an optical signal into an electrical signal. Similar to VCSELs, photodetectors combine the ability of batch processing and on-wafer testing with superior electro-optical performance. The large aperture size readily permits efficient coupling of light from a multi-mode fiber.

EMCORE has successfully developed 850 nm, 1310 nm and 1550 nm photodetectors to cover all speed and distance applications. In addition, 1x4 and 1x12 arrays of 850 nm photodetectors can be incorporated into EMCORE's optical transceiver subsystems. The addition of photodetector products completes our line of optical devices such that EMCORE can supply all internally produced optical devices to our subsystems products that include packaged components, transmitters, receivers, transceivers and transponders.

Optical Subsystems (Transmitters, Receivers, Transceivers and Transponders)

EMCORE's optical subsystems products are built using our internally produced optical devices. By adding more value beyond our optical devices, we can improve margins as well as overall revenue. Many of these subsystem products are defined through multi-source agreements (MSAs) that specify form, fit and function to guarantee wide availability and interoperability between vendors. EMCORE's strategy is to leverage our optical device expertise in order to provide the most cost-effective subsystems in key markets that do not necessarily compete with our optical device customers.

These subsystems are becoming quite intelligent with functions that retime and clean up the transmitted and received signals that pass through them. Many of these subsystems have been widely adopted in Ethernet, SONET, and Fibre Channel equipment. The most widely available is the XENPAK form factor (for more information see www.xenpak.org). In 2003, EMCORE has developed, both internally and through the Molex acquisition, several value added subsystems in the XENPAK form factor. These include the LX4 and CX4 products for short reach 10 Gb/s data communications.

EMCORE's subsystem product strategy is to differentiate through technology and cost effectiveness by leveraging our compound semiconductor expertise and the growing know-how in subsystem design and manufacturing. EMCORE's family of subsystem products, built upon our optical device expertise, includes:

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Photovoltaics

The world-wide satellite industry has seen substantial improvement in 2003, with awards to build new satellites increasing from five in 2002 to 17 thus far in 2003. In addition, the industry has seen consolidation into more financially stable institutions. As a result, we are seeing progress toward the satellite industry developing into a communications backbone for video, voice and data.

EMCORE serves the global communications market by providing advanced solar cell products and solar panels for application in the space industry. Compound semiconductor solar cells are used to power satellites because they are more resistant to radiation levels in space and convert substantially more power from light, therefore weighing less per unit of power than silicon-based solar cells. These characteristics increase satellite useful life, increase payload capacity and reduce launch costs.

A solar cell works as follows: the "photovoltaic effect" is the basic physical process through which a solar cell converts sunlight into electricity. Sunlight is composed of photons, or particles of solar energy. These photons contain various amounts of energy corresponding to the different wavelengths of the solar spectrum. When photons strike a solar cell, they may be reflected or absorbed, or they may pass right through the cell. Only the absorbed photons generate electricity. When this happens, the energy of the photon is transformed into an electric current. Special electrical properties of the solar cell provide the voltage needed to drive the current through an external load (such as a solar array for a spacecraft).

EMCORE designs and manufactures multi-junction compound semiconductor solar cells for commercial satellite applications in its facility in Albuquerque, New Mexico. This facility includes an automated manufacturing system that monitors production processes, uses electronic run cards and provides real-time production rates and yields for process engineering. EMCORE currently manufactures the most efficient and most reliable commercially available radiation resistant solar cell in the world, using an advanced triple-junction cell design and with an average beginning of life efficiency of 27.5%. Satellite success and corresponding revenue depend on power efficiency and the satellite's capacity to transmit data.

In March 2002, EMCORE acquired Tecstar, which provides covered interconnect solar cells (CICs) and solar panel lay-down services. This acquisition augments EMCORE's capability to penetrate the satellite communications market by providing EMCORE with the capacity to manufacture complete solar panels using EMCORE's solar cells, thereby enabling us to provide satellite manufacturers with proven integrated satellite power solutions that considerably improve satellite economics. Satellite manufacturers and solar array integrators can now rely on EMCORE as a single supply source that meets all of their satellite power needs with proven flight heritage. Furthermore, EMCORE obtained significant patents in this acquisition that will enable EMCORE to significantly improve the engineering and design of solar cell products. EMCORE will continue Tecstar's impressive flight heritage and solar component manufacturing expertise, which dates back to 1958 when the Vanguard satellite with Tecstar solar cells was launched. Tecstar's solar panel technology has flown on numerous successful satellite missions, including Lockheed Martin's Chinastar, Loral's Telstar satellite and Orbital Sciences' ORBCOMM Constellation. EMCORE is currently completing the process of qualifying its advanced solar cells with Tecstar's proven solar panel processes for Low Earth Orbits (LEO) and Geosynchronous Earth Orbits (GEO). To date, EMCORE has completed GEO Qualification for SS/Loral in support of the MT Sat-1R and we have completed LEO Qualification for Astrium in support of the CRYOSAT and for ABLE Engineering for the UltraFlex Array. The combination of Tecstar's demonstrated success with well-known space programs and EMCORE's solar cell technology should enable EMCORE to dramatically improve satellite economics. Through well-established partnerships with major satellite manufacturers and a proven qualification process, EMCORE believes it can play a vital role in the evolution of telecommunications and data communications around the world.

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Recent Highlights:

EMCORE has recently begun active research and development in terrestrial solar cell applications. EMCORE is conducting a National Renewable Energy Laboratory funded effort to adapt our triple junction solar cell technology for the terrestrial photovoltaic market. Due to a higher device cost when compared to silicon solar cells, we are working with solar concentrator systems to lower the cost per watt generated by our multi-junction solar cells. Major terrestrial solar power manufacturers have expressed interest in incorporating EMCORE's terrestrial solar cell technology into their commercial products.

Electronic Materials and Devices

Electronic Materials

RF materials are compound semiconductor materials used in wireless communications. Compound semiconductor RF materials have a broader bandwidth and superior performance at higher frequencies than silicon-based materials. EMCORE currently produces 4-inch and 6-inch InGaP HBT and AlGaAs pHEMT materials including E-mode devices that are used for power amplifiers in GSM, TDMA and CDMA multiband wireless handsets. InGaP HBT materials provide higher linearity, higher power added efficiency as well as greater reliability than first generation AlGaAs HBT technologies. In addition, recent developments and transfers to production of enhancement mode pHEMT technologies have demonstrated their continued competitiveness for handset applications. EMCORE believes that its ability to produce high volumes of RF materials at a low cost will encourage their adoption in new applications and products.

EMCORE's Somerset, New Jersey manufacturing facility has seven TurboDisc MOCVD production systems, one GaN production system and two GaN Discovery systems dedicated to electronic materials production. EMCORE also equipped its wafer fabrication area with state of the art cassette to cassette characterization equipment.

Electronic Devices

MR sensors are compound semiconductor devices that possess sensing capabilities. MR sensors improve vehicle performance through more accurate control of engine and crank shaft timing, which allows for improved spark plug efficiency and reduced emissions. EMCORE sells MR sensors using technology licensed from General Motors.

HB-LED Joint Venture

HB-LEDs are solid-state compound semiconductor devices that emit light and are used in miniature packages in everyday applications such as indicator lights on automobiles, computers and other electronic equipment. HB-LEDs offer substantial advantages over small incandescent bulbs, including longer life, lower maintenance costs and energy consumption and smaller space requirements. Groups of HB-LEDs can make up single or full-color electronic displays. Presently, HB-LED chips are used for backlighting in applications such as wireless handsets, computer monitors and automotive dashboard lighting. In addition, they are used in consumer products and office equipment as indicator lighting, in full color displays, message advertising and informational signs, landscape lighting and traffic signals. By passing blue HB-LED light through certain conversion materials such as phosphors, or by using blue in combination with HB-LEDs of other appropriate colors, white light emission can be obtained.

HB-LEDs have the potential to significantly reduce overall U.S. lighting energy consumption. Energy savings to date from HB-LEDs have been estimated to exceed the power produced from one large electric power plant — more than 8 billion kilowatt-hours. If solid-state lighting achieves anticipated price and performance targets, over the next two decades U.S. lighting energy consumption could be reduced by over 30 percent. HB-LED traffic signals use only 10 percent of the electricity consumed by the

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incandescent lamps they replace. Moreover, LED signals last several times longer, allowing for additional savings through reduced maintenance costs. HB-LEDs have also made inroads into mobile applications such as brake and signal lights on trucks, buses and automobiles. In 2002, an estimated 41 million gallons of gasoline and 142 million gallons of diesel fuel were saved because of HB-LED use on these vehicles. If our nation's entire fleet of automobiles, trucks and buses were converted to HB-LED lighting, an estimated 1.4 billion gallons of gasoline and 1.1 billion gallons of diesel fuel could have been saved. The information in this paragraph is based on published reports prepared by Navigant Consulting for the US Department of Energy.

As mentioned above, in January 1999, EMCORE and General Electric Lighting formed GELcore, a joint venture to develop and market HB-LED lighting products. Under the terms of the joint venture agreement, EMCORE has a 49% non-controlling interest in the joint venture. Both parties have agreed that this joint venture will be the exclusive vehicle for each party's participation in solid-state lighting. GELcore combines EMCORE's materials science and device design expertise with General Electric Lighting's brand name recognition, phosphor technology and extensive marketing and distribution capabilities. GELcore's current product line includes traffic lights, channel letters, flashlights and other signage and display products incorporating HB-LEDs. In the near term, GELcore expects to be deploying its HB-LED products in the automotive and general appliance markets. GELcore's long-term goal is to develop products to replace traditional lighting. In September 2000, GELcore acquired Ecolux, Inc., adding HB-LED signaling products to its growing line of LED products. EMCORE believes that Ecolux is currently receiving the majority of contracts for which it submits bids for the replacement of traditional traffic lights with HB-LEDs.

TurboDisc Systems Segment

As mentioned above, on November 3, 2003, EMCORE sold its TurboDisc systems business to Veeco. Revenues for the systems segment were derived primarily from sales of TurboDisc systems, as well as spare parts, services and related products. The sale of the TurboDisc business will allow management to focus on its communications-related product lines, including its CATV, telecommunications, data and storage, wireless, and photovoltaic products as well as the GELcore joint venture with GE concentrating on HB-LED technology.

Revenues by Product Line and Financial Results by Segment

The table below sets forth the revenues and percentage of total revenues attributable to each of EMCORE's product lines for each of the past three fiscal years.

(in thousands)
Product Revenue				FY 2003				% of revenue				FY 2002				% of revenue				FY 2001				% of revenue
Systems-related				$	52,681				46.6	%		$	35,878				40.9	%		$	131,141				71.0	%
Components and subsystems related:
Photovoltaics					18,196				16.1	%			23,621				26.9	%			20,206				10.9	%
Fiber Optics					32,658				28.9	%			9,077				10.3	%			13,606				7.4	%
Electronic Materials and Devices					9,571				8.4	%			19,196				21.9	%			19,661				10.7	%
Total revenues				$	113,106				100.0	%		$	87,772				100.0	%		$	184,614				100.0	%

See Items 7 and 8, beginning on page 35, for information on EMCORE's financial results by segment.

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Government Research Contract Funding

EMCORE derives a portion of its revenue from funding of research contracts with the U.S. Government (Government). These contracts typically cover work performed from over several months up to several years. These contracts may be modified or terminated at the convenience of the Government and therefore, these programs may be subject to Government budgetary fluctuations. Government contracts generally provide that we may elect to retain title to inventions made in the course of research with the Government obtaining a non-exclusive license to practice such inventions for Government purposes. In fiscal 2003, 2002, and 2001, Government research contract funding represented 5%, 4% and 1% of total EMCORE revenue, respectively.

In June 2002, EMCORE signed a contract with Defense Advanced Research Projects Agency (DARPA) under which it will participate in the Department of Defense agency's mission to develop wide bandgap semiconductor-based high power, high frequency electronics for use in military applications based on EMCORE's GaN technology. The contract consists of a $3.0 million baseline project to be completed over an 18-month period and $1.0 million of additional work to be performed at the Government's option over a subsequent 10-month period. The Government has not yet exercised this option. EMCORE will recognize revenue to the extent of costs incurred plus the estimated gross profit as stipulated within the contract, based upon contract performance. EMCORE intends to use the technology developed in this and other Government contracts to commercialize products based on its wide-bandgap materials technology.

Customers

EMCORE works closely with its customers to design and develop process technology and material science expertise for use in production systems for its customers' end-use applications. EMCORE has leveraged its process and materials science knowledge base to manufacture a broad range of compound semiconductor wafers and devices. EMCORE's customer base includes many of the largest semiconductor, telecommunications, consumer goods and computer manufacturing companies in the world. In fiscal 2003, revenues from Cree, Inc., associated with our systems segment, represented 11.5% of our total revenue. No other customer accounted for over 10% of EMCORE's revenue.

EMCORE has generated a significant portion of its revenue from sales to customers outside the United States. The following chart contains a breakdown of EMCORE's consolidated revenues by geographic region:

				For the fiscal years ended September 30,
Region				2003								2002								2001
				Revenue				% of revenue				Revenue				% of revenue				Revenue				% of revenue
				(in thousands)
United States				$	64,189				56.8	%		$	58,844				67.0	%		$	96,551				52.3	%
Asia					34,132				30.2	%			15,268				17.4	%			76,848				41.6	%
Europe					14,785				13.0	%			13,660				15.6	%			11,215				6.1	%
TOTAL				$	113,106				100	%		$	87,772				100	%		$	184,614				100	%

In fiscal 2002, sales to Asia and North America declined dramatically because of a large decrease in capital spending by our customers and a consequent decrease in demand for our MOCVD systems. Sales to the United States include sales to Canada, which have not, historically, been material.

Marketing and Sales

EMCORE actively markets its products through its dedicated sales force, external sales agents, marketing staff, applications engineers, select advertising and participation at trade shows. Our customers work directly with our internal sales force, external sales agents and senior management. EMCORE's strategy is to use its dedicated sales force for marketing and selling to key accounts. EMCORE has plans to expand its external sales agents for increased coverage outside the U.S. and for specific product lines, such as Satcom, in the U.S.

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To market and sell certain products in Japan and China, EMCORE relies on Hakuto Co., Ltd. Hakuto has marketed and serviced EMCORE's products since 1988 via six branch offices and owns approximately 4% of EMCORE's common stock. Until he retired in 2002, Shigeo Takayama, the President of Hakuto had also been a member of EMCORE's Board of Directors since 1997.

EMCORE uses Indus Corporation to market photovoltaic products in India, UR Group to market Optical products in Europe, BUPT and MilliTech as sales agent in China for CATV, optical components and Satcom products. EMCORE has an established distribution and value added reseller channel to sell its Satcom products worldwide.

In addition to EMCORE's five manufacturing facilities, it also maintains one domestic sales office located in Santa Clara, California.

While there are common technologies used by each product line, the customers and market segments are much more diverse. Each product line has a marketing and sales organization that can focus completely on the customer needs, the service required both before and after the order is received, as well as on the competitive threats each product and market segment faces. EMCORE's sales cycle for component and subsystem products is usually three months to in excess of a year, during which time EMCORE works closely with its customers to qualify its products in its customers' product lines. Accordingly, EMCORE is able to develop strategic, and therefore long lasting, customer relationships with products and services that are uniquely tailored to our customers' requirements.

Backlog

As of September 30, 2003, EMCORE had a backlog (not including our systems-segment backlog of $18.4 million) believed to be firm of approximately $33.1 million. This compares to a backlog of $19.3 million (exclusive of systems-segment backlog) as reported at the end of the prior year. Half of the increase in backlog was attributable to the Ortel acquisition. Historically, significant portions of our components and subsystems revenue have not been reported in backlog since our customers have reduced lead times. Many of our components and subsystems sales usually occur within the same month when the purchase order is received. The backlog does not include orders for products that have not met qualification specifications. We believe the entire backlog could be filled during fiscal 2004, however, especially given the current market environment, customers may delay shipment of certain orders. Backlog also could be adversely affected if customers unexpectedly cancel purchase orders accepted by us.

Manufacturing

EMCORE's operations include wafer fabrication, design and device production, solar panel engineering and assembly and fiber optic module design and manufacture. Many of EMCORE's manufacturing operations are computer monitored or controlled to enhance reliability and yield. EMCORE employs a strategy of minimizing ongoing capital investments while maximizing the variable nature of its cost structure. EMCORE maintains a commercially advantageous contract supply agreement with Veeco for MOCVD systems, components and spare parts. Where EMCORE can gain significant cost advantages while maintaining strict quality and intellectual property control, EMCORE outsources to Contract Manufacturers (CMs) the production of certain components and sub-assemblies. EMCORE's contract manufacturing supply chain is an integral part of enabling this strategy. EMCORE develops assembly and testing procedures and transfers these procedures to the CMs. The CMs must maintain quality and delivery systems as comprehensive as EMCORE and are continuously monitored for compliance. As of September 30, 2003, EMCORE had 447 employees involved in manufacturing. The location of and products manufactured at EMCORE's facilities are summarized below:

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Location				EMCORE product line
Somerset, New Jersey (headquarters)				•  Electronic materials and devices (HBTs, pHEMTs and MR sensors)
Albuquerque, New Mexico				•  Photovoltaics (solar cells)
				•  Fiber optics (VCSELs and fiber optic modules)
City of Industry, California				•  Photovoltaics (CICs and solar panels)
Alhambra, California				•  Fiber Optics (CATV/ FTTx, Lasers, Modules and Subsystems)
Downers Grove, Illinois				•  Fiber Optics (10G Ethernet Fiber Optical Components)

EMCORE has combined clean room area totaling approximately 60,000 square feet. Unlike silicon semiconductor technology, which could involve up to a 100-step manufacturing process, our electronic materials and devices products are manufactured in a four-part process: epitaxial deposition, fabrication, testing and packaging. The epitaxial deposition process represents the growth of thin layers of GaAs, GaN or other materials on a polished wafer, depending on the nature of the device under production. Following epitaxy, chips are fabricated in a clean room environment. The final steps involve testing and packaging prior to shipment to the customer or further integration into a module or subsystem within EMCORE's manufacturing infrastructure. The module and subsystem assembly and test processes within EMCORE's manufacturing infrastructure involves the design and implementation of production processes as well as the transfer of some of these processes to CMs. EMCORE maintains an internal capability to transfer and monitor the ongoing processes at all CMs.

The manufacturing process also involves extensive quality assurance systems and performance testing. All of EMCORE's facilities have acquired and maintain certification status for their quality management systems. The New Jersey facility, which is used by EMCORE's Electronic Materials and Devices group, is registered to ISO 9001+ QS 9000-1998. Both the New Mexico and California facilities, which are used by EMCORE's Photovoltaics and Fiber Optics groups, are registered to ISO 9001.

Sources of Raw Materials

Outside contractors and vendors are used to supply raw materials and standard components and to assemble portions of end subsystems, components and modules from EMCORE specifications. In certain cases, EMCORE depends on sole, or a limited number of, vendors of components and raw materials; however, EMCORE is continually reviewing efforts to mitigate risks. We generally do not carry significant inventories of any raw materials. EMCORE maintains inventories it believes are sufficient to meet its near term needs. Because we often do not account for a significant part of our vendors' business, we may not have access to sufficient capacity from these vendors in periods of high demand. EMCORE maintains ongoing communications with its vendors to try to ensure against interruptions in supply and has, to date, generally been able to obtain sufficient supplies in a timely manner. EMCORE implemented a vendor program to inspect quality and review suppliers and prices in order to standardize purchasing efficiencies and design requirements in order to maintain as low a cost of sales as possible. If we were to change any of our limited or sole source vendors, we could be required to re-qualify the new vendor. Re-qualification could prevent or delay product shipments that could negatively affect our results of operations. In addition, our reliance on these vendors may negatively affect our production if the components vary in quality or quantity. If we are unable to obtain timely deliveries of sufficient components of acceptable quality, or if the prices of components for which we do not have alternative sources increase, our business, financial condition, results of operations and cash flows could be materially and adversely affected.

Research and Development

The scope of EMCORE's business is in the areas of semiconductor processes and communication components and subsystems. EMCORE's research and development efforts have been sharply focused to maintain the technology leading position of various product lines and to grow into new product areas by leveraging the existing technology base and infrastructure.

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The semiconductor industry is characterized by rapid changes in process technologies with increasing levels of functional integration. To maintain and improve its competitive position, EMCORE invests significant resources in research and development. Our efforts are focused on designing new proprietary processes and products, improving the performance of our existing materials, devices and modules, and reducing costs in the product manufacturing process. EMCORE has dedicated 23 MOCVD systems and five device fabrication facilities for both research and production that are capable of processing virtually all compound semiconductor materials and devices. Nine of those MOCVD systems and three device fabrication areas are dedicated fully to research and development efforts and are used by a staff of over 100 scientists, engineers, technicians and staff, 46 of which have a Ph.D. degree. The research and development staff utilizes x-ray, optical and electrical characterization equipment as well as device and module fabrication and testing that generates data rapidly, allowing for shortened development cycles and rapid customer response.

During fiscal years 2003, 2002 and 2001, EMCORE invested $22.2 million, $41.0 million and $53.4 million towards our product research and development activities. As part of the ongoing effort to cut costs, EMCORE implemented a program to focus research and development efforts on projects that can be expected to generate returns within one year. As a result, EMCORE has been able to reduce overall research and development costs without, we believe, jeopardizing future revenue opportunities. EMCORE believes that several research and development projects have the potential to greatly improve its competitive position and to drive its revenue growth in the next few years. Listed below are several examples:

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EMCORE also competes for research and development funds. In view of the high cost of development, EMCORE solicits research contracts that provide opportunities to enhance its core technology base and promote the commercialization of targeted EMCORE products. Internal research and development funding is used for product development for products to be released within 12 months and external funding is used for longer range research and development.

Intellectual Property and Licensing

EMCORE's success and competitive position in its product lines depends significantly on its ability to obtain intellectual property protection for its research and development efforts. EMCORE's strategy is to rely on both patents and trade secrets to protect its intellectual property. A patent is the grant of a property right, which allows its holder to exclude others from, among other things, selling the subject invention in, or importing such invention into, the jurisdiction that granted the patent. In the United States, patents expire twenty years from the date of application. Through recent acquisitions, EMCORE has enriched its patent portfolio significantly. After giving effect to the transfer of system-related patents (19 patents) to Veeco, EMCORE has 22 U.S. patents and four foreign patents, and others are either pending (99 patent applications filed) or under in-house review (20 disclosures and draft patent applications). Included in these amounts are patents and patent applications acquired from Ortel in January 2003. In addition, through the Ortel acquisition, EMCORE obtained a royalty free license to approximately 5,700 patents and patent applications in the Agere Corporation portfolio, many of which originate with ATT Bell Laboratories.

The U.S. patents will expire between 2009 and 2022. These patents and patent applications claim material aspects of current or planned commercial versions of EMCORE's wafers, devices and modules. In addition, EMCORE actively markets and licenses its intellectual property. Some recently issued patents and filed patent applications include:

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EMCORE relies on trade secrets to protect its intellectual property when it believes publishing patents would make it easier for others to reverse engineer EMCORE's proprietary processes. A "trade secret" is information that has value to the extent it is not generally known, not readily ascertainable by others through legitimate means and protected in a way that maintains its secrecy. Reliance on trade secrets is only an effective business practice insofar as trade secrets remain undisclosed and a proprietary product or process is not reverse engineered or independently developed. In order to protect its trade secrets, EMCORE takes certain measures to ensure their secrecy, such as partitioning the non-essential flow of information between its different groups and executing non-disclosure agreements with its employees, joint venture partners, customers and suppliers.

As is typical in our industry, we have, from time to time, received, and may continue to receive in the future, letters from third parties, asserting patent rights or other intellectual property rights against certain of our products and processes. None of the claims to date has resulted in the commencement of any litigation against us. From time to time, EMCORE licenses from third parties, technology and patent rights to manufacture and sell its products. For example, EMCORE is a licensee of certain VCSEL technology and associated patent rights owned by Sandia Corporation. The Sandia license grants EMCORE:

In connection with the sale of TurboDisc, EMCORE retained a license to all system-related technology. EMCORE intends to use the license to further optimize the performance of its own reactors and develop improvements to its hardware that will increase yields on existing products and enable the fabrication of advanced, wide bandgap materials.

Environmental Regulations

EMCORE is subject to federal, state and local laws and regulations concerning the use, storage, handling, generation, treatment, emission, release, discharge and disposal of certain materials used in its research and development and production operations, as well as laws and regulations concerning environmental remediation and employee health and safety. The production of wafers and devices involves the use of certain hazardous raw materials, including, but not limited to, ammonia, phosphine and arsine. EMCORE has in-house professionals to address compliance with applicable environmental and health and safety laws and regulations.

If EMCORE's control systems are unsuccessful in preventing release of these or other hazardous materials, EMCORE could experience a substantial interruption of operations and could be subject to significant liability for clean-up and other claims. EMCORE believes that it is currently in compliance with all applicable environmental laws, including the Resource Conservation and Recovery Act, except such violations as could not reasonably be expected to have a material effect on the financial condition or results of operations of EMCORE.

Competition

The semiconductor industry is intensely competitive and is characterized by rapid technological change, price erosion and substantial foreign competition. EMCORE faces actual and potential competition from a number of established domestic and international compound semiconductor companies. Many of these companies have greater engineering, manufacturing, marketing and financial resources than we have.

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CATV

Competitors in the CATV market include JDS Uniphase, Mitsubishi, Hitachi and Fujitsu.

Telecommunications

For telecommunications and FTTx components, the market competitors include JDS Uniphase, MRV Communications, Fujitsu, Mitsubishi, and Summitomo. For 10G transceivers and parallel optical modules, the competitors include Agilent Technologies, Infineon Technologies AG, Picolight and Opnext.

Data and Storage

EMCORE's principal competitor for VCSEL devices and components is Honeywell, Inc. There are also numerous smaller VCSEL vendors located throughout the world. For 10G LX4 and CX4 products, the primary competitor is Opnext.

Satellite Communications

For photovoltaics products, EMCORE primarily competes with Boeing-Spectrolab, Sharp Electronics, RWE Solar and Mitsubishi Electric. For Satcom products the primary competitors are Foxcomm and Miteq.

Wireless Communication

The primary competitors for EMCORE's Electronic Materials Wireless Communication products include Kopin Corporation, Visual Photonics Epitaxy Co., Ltd., and IQE.

Solid Sate Lighting

The principal competitors for HB-LEDs and EMCORE's joint venture with General Electric Lighting include LumiLeds Lighting, a joint venture between Agilent Technologies and Philips Lighting, Siemens AG's Osram GmbH subsidiary, Nichia Corporation and Toyoda Gosei Co., Ltd. In addition, Epistar, Arima, UEC and other Asian based companies in recent years have begun production of LEDs.

In addition to the above, EMCORE competes with many research institutions and universities for research contract funding. EMCORE also sells its products to current competitors and companies with the capability of becoming competitors. As the markets for EMCORE's products grow, new competitors are likely to emerge and present competitors may increase their market share. Furthermore, in the EU, political and legal requirements encourage the purchase of EU-produced goods, which can put EMCORE at a competitive disadvantage as against European competitors.

There are substantial barriers to entry by new competitors across EMCORE's product lines. These barriers include: the large number of existing patents, time and costs to be incurred to develop products, technical difficulty in manufacturing semiconductor products, lengthy sales and qualification cycles, and difficulties in hiring and retaining skilled employees with the required scientific and technical backgrounds. EMCORE believes that the primary competitive factors in the markets in which EMCORE's products compete are yield, throughput, performance, breadth of product line, product heritage, customer satisfaction, and customer commitment to competing technologies. Competitors may develop enhancements to or future generations of competitive products that offer superior price and performance factors. EMCORE believes that in order to remain competitive, it must invest significant financial resources in developing new product features and enhancements and in maintaining customer satisfaction worldwide.

Investments

In addition to the GELcore joint venture, in February 2002, EMCORE purchased $1.0 million of preferred stock of Archcom Technology, Inc., a venture-funded, start-up optical networking components company that designs, manufactures, and markets a series of high performance lasers and photodiodes for datacom and telecom industries. EMCORE does not exercise significant influence over financial and operating policies, and the investment represents less than 20% of ownership. Therefore, EMCORE accounts for this investment under the cost method of accounting.

Employees

At September 30, 2003, EMCORE had 749 employees, including 447 employees in manufacturing operations, 105 employees in research and development, 183 employees in sales, general and administration and 14 temporary employees. This represented an increase of 191 employees or 34% from

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September 30, 2002. This increase was a direct result of the Ortel acquisition. At December 1, 2003, as a result of our sale of TurboDisc business, EMCORE had 621 employees. Our ability to attract and retain qualified personnel is essential to our continued success. None of EMCORE's employees are covered by a collective bargaining agreement, nor have we ever experienced any labor-related work stoppage. We believe that our employee relations are good.

Risk Factors

YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY AND ADVERSELY AFFECTED. WE CAUTION THE READER THAT THESE RISK FACTORS MAY NOT BE EXHAUSTIVE. WE OPERATE IN A CONTINUALLY CHANGING BUSINESS ENVIRONMENT, AND NEW RISK FACTORS EMERGE FROM TIME TO TIME. WE CANNOT PREDICT SUCH NEW RISK FACTORS, AND WE CANNOT ASSESS THE EFFECT, IF ANY, OF SUCH NEW RISK FACTORS ON OUR BUSINESSES OR THE EXTENT TO WHICH ANY FACTOR, OR COMBINATION OF FACTORS, MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED IN ANY FORWARD-LOOKING STATEMENTS CONTAINED IN THIS REPORT. ACCORDINGLY, FORWARD-LOOKING STATEMENTS SHOULD NOT BE RELIED UPON AS A PREDICTION OF ACTUAL RESULTS. IN ADDITION, OUR MANAGEMENT'S ESTIMATES OF FUTURE OPERATING RESULTS ARE BASED ON THE CURRENT COMPLEMENT OF BUSINESSES, WHICH IS CONSTANTLY SUBJECT TO CHANGE AS MANAGEMENT IMPLEMENTS ITS FIX, SELL OR GROW STRATEGY.

We May Continue To Incur Operating Losses.

We started operations in 1984 and as of September 30, 2003, we had an accumulated deficit of $289.4 million. We incurred net losses of $38.5 million in fiscal 2003, $129.8 million in fiscal 2002 and $12.3 million in fiscal 2001. While we have reduced our cost structure substantially, we may continue to lose money. Many of our expenses, particularly those relating to capital equipment, debt service and manufacturing overhead are fixed. Accordingly, lower revenue causes our fixed production costs to be allocated across reduced production volumes, which adversely affects our gross margin and profitability. Therefore, we expect to continue to incur operating losses until revenues significantly increase. We cannot currently predict whether or when demand will strengthen across our product lines or how quickly our customers will consume their inventories of our products.

We May Be Unable to Replace the Revenues From Our Capital Equipment Business.

On November 3, 2003, EMCORE sold its TurboDisc systems business to Veeco. In fiscal 2003, systems segment sales contributed $52.7 million in revenues, approximately 46.5% of EMCORE's total revenues. If sales from our component and subsystem product lines do not increase to replace those lost revenues, we will not be able to absorb our fixed costs, invest in new technologies or implement our strategy.

Our Cost Reduction Programs May Be Insufficient To Achieve Long-Term Profitability.

We are undertaking cost reduction measures intended to reduce our expense structure at both the cost of goods sold and the operating expense levels. We believe these measures are a necessary response to, among other things, declining average sales prices across our product lines. These measures may be unsuccessful in creating profit margins sufficient to sustain our current operating structure and business.

Reduced Customer Lead Times Means We Are Less Able To Forecast Revenues And, As A Result, May Be Unable To Accurately Predict Growth And Manage Our Cost Structure.

Several of our customers have reduced the lead times they give us when ordering product from us. While this trend has enabled us to reduce inventory, it also restricts our ability to forecast revenues. If our sales and profit margins do not increase to support the higher levels of operating expenses and if our new product offerings are not successful, our business, financial condition, results of operations and cash flows could be materially and adversely affected.

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We Have Substantial Debt Which We May Be Unable To Repay If We Cannot Generate Sufficient Funds To Do So Or Restructure The Terms Of The Debt.

In May 2001, we sold $175.0 million of convertible subordinated notes due in 2006 in a private placement for resale to qualified institutional buyers. Approximately, $161.8 million of these notes is currently outstanding. We also have approximately $0.7 million of guarantee obligations in respect of the GELcore joint venture. In addition, we may incur additional debt in the future. This significant amount of debt could, among other things:

If our cash flow is inadequate to meet our obligations or we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments on the notes or our other obligations, we would be in default under the terms thereof. Default under the note indenture would permit the holders of the notes to accelerate the maturity of the notes and could cause defaults under future indebtedness we may incur. Any such default would have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows. In addition, we cannot assure you that we would be able to repay amounts due in respect of the notes if payment of the notes were to be accelerated following the occurrence of an event of default as defined in the note indenture.

Depending on market and other considerations, we may seek to restructure our debt by extending the maturity and/or reducing principal amount of our subordinated notes. In order to accomplish this, we may be required to issue significant amounts of common stock and substantially reduce the price at which the notes are convertible into our common stock. As a result, our current shareholders could suffer significant dilution, and our share price could be negatively affected.

Our Success Depends On Our Ability To Introduce New Products On A Timely Basis.

We compete in markets characterized by rapid technological change, evolving industry standards and continuous improvements in products. Due to constant changes in these markets, our future success depends on our ability to improve our manufacturing processes, systems and products. To remain competitive we must continually introduce new and improved products. Our business, financial condition, results of operations and cash flows may be materially and adversely affected if:

If The Internet Does Not Continue To Grow As Expected And Demand Does Not Increase For Our Communications Products, Our Business Will Suffer.

Our future success as a manufacturer of optical components, modules and subsystems ultimately depends on the continued growth of the communications industry, and, in particular, the growth of the Internet as a global communications system. As part of that growth, we are relying on increasing demand for high-content voice, text and other data delivered over high-speed connections (i.e., high bandwidth communications). As Internet usage and bandwidth demand increase, so does the need for advanced optical networks to provide the required bandwidth. Without Internet and bandwidth growth, the need for our advanced communications products, and hence our future growth as a manufacturer of these

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products, is jeopardized. Currently, while generally increasing demand for Internet access is apparent, less evident is when order capacity will be absorbed. Moreover, multiple service providers compete to supply the existing demand. Also, currently, fiberoptic networks have significant excess capacity. The combination of a large number of service providers and excess network capacity has resulted in severely depressed prices for bandwidth. Until pricing recovers, service providers have less incentive to install equipment and, thus, little need for many of our communications products.

Ultimately, should long-term expectations for Internet growth and bandwidth demand not be realized, our business would be significantly harmed.

Shifts In Industry-wide Demands And Inventories Could Result In Significant Inventory Write-downs.

The life cycles of some of our products depend heavily upon the life cycles of the end products into which our products are designed. Products with short life cycles require us to manage production and inventory levels closely. We evaluate our ending inventories on a quarterly basis for excess quantities, impairment of value and obsolescence. This evaluation includes analysis of sales levels by product and projections of future demand based upon input received from our customers, sales team and management estimates. We reserve for inventories on hand that are greater than 12-months old, unless there is an identified need for the inventory. In addition, we write off inventories that are considered obsolete based upon changes in customer demand, manufacturing process changes that result in existing inventory obsolescence or new product introductions, which eliminate demand for existing products. Remaining inventory balances are adjusted to approximate the lower of our manufacturing cost or market value. If future demand or market conditions are less favorable than our estimates, additional inventory write-downs may be required. In fiscal 2002, EMCORE recorded a $11.9 million inventory charge for excess raw material and finished goods inventory that EMCORE believed it was carrying as a result of market conditions. In fiscal 2003, EMCORE recorded a $2.0 million inventory charge related to certain transceiver devices that were later determined to be non-saleable because of design modifications. We cannot assure investors that obsolete or excess inventories, which may result from unanticipated changes in the estimated total demand for our products and/or the estimated life cycles of the end products into which our products are designed, will not affect us beyond the inventory charges that we have already taken.

The Time And Costs Of Developing New Products May Exceed Our Budget And Our Products May Not Be Commercially Successful.

We have recently introduced a number of new products and expect to be introducing additional new products in the near future. The commercialization of new products involves substantial expenditures in research and development, production and marketing. We may be unable to successfully design or manufacture these new products and may have difficulty penetrating new markets.

Because it is generally not possible to predict the amount of time required and the costs involved in achieving certain research, development and engineering objectives, actual development costs may exceed budgeted amounts and estimated product development schedules may be extended. Our business, financial condition, results of operations and cash flows could suffer if we incur budget overruns or delays in our research and development efforts.

We May Engage In Acquisitions That May Harm Our Operating Results, Dilute Our Shareholders And Cause Us To Incur Debt.

We may pursue acquisitions to acquire new technologies, products or service offerings. Future acquisitions by us may involve the following:

In addition, acquisitions involve numerous risks, including:

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From time to time, we have engaged in discussions with acquisition candidates regarding potential acquisitions of product lines, technologies and businesses. If acquisitions occur, we cannot be certain that our business, operating results and financial condition will not be materially and adversely affected.

In the past two years we have completed several major acquisitions which have reoriented EMCORE's strategy and broadened our product lines within our target markets. However, if customer demand in these markets does not meet current expectations, our revenues could be significantly reduced, and we could suffer a material adverse effect on our financial condition, results of operations and cash flows.

Our Recent Acquisitions Place A Strain On Our Resources.

We are in a dynamic business and our recent acquisitions have presented many challenges. These acquisitions have placed and will continue to place a significant strain on our management, financial, sales and other employees and on our internal systems and controls. If we are unable to effectively manage multiple facilities and a joint venture in geographically distant locations, our business, financial condition, results of operations and cash flows could be materially and adversely affected.

Our Industry Is Rapidly Changing.

The compound semiconductor industry is changing rapidly due to, among other things, continuous technological improvements in products and evolving industry standards. This industry is marked by the continuous introduction of new products and increased capacity for services similar to those provided by us. Future technological advances in the compound semiconductor industry may result in the availability of new products or increase the efficiency of existing products. If a technology becomes available that is more cost effective or creates a superior product, we may be unable to access such technology or its use may involve substantial capital expenditures, which we may be unable to finance. There can be no assurance that existing, proposed or as yet undeveloped technologies will not render our technology less profitable or that we will have available the financial and other resources necessary to compete effectively against companies possessing such technologies. There can be no assurance that we will be able to adapt to technological changes or offer competitive products on a timely or cost effective basis.

The Markets In Which We Compete Are Highly Competitive. An Increase In Competition Would Limit Our Ability To Maintain Or Increase Our Market Share.

We face substantial competition from a number of companies, many of which have greater financial, marketing, manufacturing and technical resources. Larger competitors could spend more on research and development, which could give those competitors an advantage in meeting customer demand. We expect that existing and new competitors will improve the design of their existing products and will introduce new products with enhanced performance characteristics. The introduction of new products or more efficient production of existing products by our competitors could result in price reductions and increases in expenses, and reduce market acceptance of our products, which could diminish our market share and gross margins.

Fluctuations In Our Quarterly Operating Results May Negatively Impact Our Stock Price.

Our revenues and operating results may vary significantly from quarter to quarter due to a number of factors particular to EMCORE and the compound semiconductor industry. Not all of these factors are in our control. These factors include:

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These factors may cause our operating results for future periods to be below the expectations of analysts and investors. This may cause a decline in the price of our common stock.

General Electric Lighting, Our Joint Venture Partner, Who Has Majority Ownership and Control Of GELcore, May Make Decisions That We Do Not Agree With And That Adversely Affect Our Net Income.

We have a 49% minority interest in our GELcore joint venture with General Electric Lighting. A board of managers governs GELcore with representatives from both General Electric Lighting and EMCORE. Many fundamental decisions must be approved by both parties, which means we will be unable to direct the operation and direction of GELcore without the agreement of General Electric Lighting. If we are unable to agree on important issues with General Electric Lighting, GELcore's business may be delayed or interrupted, which may, in turn, materially and adversely affect our business, financial condition, results of operations and cash flows.

We have devoted and will be required to continue to devote significant funds and technologies to GELcore to develop and enhance its products. In addition, GELcore requires that some of our employees devote much of their time to its projects. This places a strain on our management, scientific, financial and sales employees. If GELcore is unsuccessful in developing and marketing their products, our business, financial condition, results of operations and cash flows may be materially and adversely affected.

General Electric Lighting and EMCORE have agreed that our joint venture will be the sole vehicle for each party's participation in the solid state lighting market. General Electric Lighting and EMCORE have also agreed to several limitations during the life of the venture and thereafter relating how each of us can make use of the joint venture's technology. One consequence of these limitations is that in certain circumstances, such as a material default by us or certain sales of our interest in the joint venture, we would not be permitted to use the joint venture's technology to compete against General Electric Lighting in the solid state lighting market.

Since A Large Percentage of Our Revenues Are From Foreign Sales, Certain Export Risks May Disproportionately Affect Our Revenues.

Sales to customers located outside the U.S. accounted for approximately 43% of our revenues in fiscal 2003, 33% of our revenues in fiscal 2002 and 48% of our revenues in fiscal 2001. Sales to customers in Asia represent the majority of our international sales. We believe that international sales will continue to account for a significant percentage of our revenues. Because of this, the following export risks may disproportionately affect our revenues:

We Will Lose Sales If We Are Unable To Obtain Government Authorization To Export Our Products.

Exports of our products to certain destinations, such as the People's Republic of China, Argentina, Brazil, India, Russia, Malaysia and Taiwan, may require pre-shipment authorization from U.S. export

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control authorities, including the U.S. Departments of Commerce and State. Authorization may be conditioned on end-use restrictions. Failure to receive these authorizations may materially and adversely affect our revenues and in turn our business, financial condition, results of operations and cash flows from international sales.

Our photovoltaics business is particularly sensitive to export control issues. All of our commercially available photovoltaic products are export-controlled and are currently subject to the jurisdiction of the U.S. Department of Commerce. Many of our customers are located in countries, like Russia, India, Argentina and Brazil, for which export licenses are required. Moreover, given the current global political climate, obtaining export licenses may be more difficult and time-consuming than in the past. Failure to obtain export licenses for photovoltaic shipments could significantly reduce revenues of our materials-related segment and could have a material adverse effect on our financial condition, results of operations and cash flows.

Our Operating Results Could Be Harmed If We Lose Access To Sole Or Limited Sources Of Materials Or Services.

We currently obtain some components and services for our products from limited or single sources. We generally do not carry significant inventories of any raw materials. Because we often do not account for a significant part of our vendors' business, we may not have access to sufficient capacity from these vendors in periods of high demand. In addition, we risk having important suppliers terminate product lines, change business focus or even go out of business. If we were to change any of our limited or sole source vendors, we would be required to re-qualify each new vendor. Re-qualification could prevent or delay product shipments that could negatively affect our results of operations. In addition, our reliance on these vendors may negatively affect our production if the components vary in quality or quantity. If we are unable to obtain timely deliveries of sufficient components of acceptable quality or if the prices of components for which we do not have alternative sources increase, our business, financial condition, results of operations and cash flows could be materially and adversely affected.

Our Products Are Difficult To Manufacture And Our Production Could Be Disrupted If We Are Unable To Avoid Manufacturing Difficulties.

We manufacture all of our wafers and devices in our manufacturing facilities. Minute impurities, difficulties in the production process, defects in the layering of the devices' constituent compounds, wafer breakage or other factors can cause a substantial percentage of wafers and devices to be rejected or numerous devices on each wafer to be non-functional. These factors can result in lower than expected production yields, which would delay product shipments and may materially and adversely affect our operating results. We have experienced difficulties in achieving planned yields in the past, particularly in pre-production and upon initial commencement of full production volumes, which have adversely affected our gross margins. Because the majority of our costs of manufacture are relatively fixed, the number of shippable devices per wafer for a given product is critical to our financial results. Therefore, it is critical for us to improve the number of shippable product per wafer and increase the production volume of wafers in order to maintain and improve our results of operations. Additionally, because we manufacture products internally, any interruption in manufacturing resulting from fire, natural disaster, equipment failures or otherwise could materially and adversely affect our business, financial condition, results of operations and cash flows.

We Face Lengthy Sales And Qualifications Cycles For Our Products And, In Many Cases, Must Invest A Substantial Amount Of Time And Funds Before We Receive Orders.

Several of our products are currently being tested to determine whether they meet customer or industry specifications. During this qualification period, we invest significant resources and dedicate substantial production capacity to the manufacture of these new products, prior to any commitment to purchase by the prospective customer and without generating significant revenues from the qualification process. If we are unable to meet these specifications or do not receive sufficient orders to profitably use the dedicated production capacity, our business, financial condition, results of operations and cash flows could be materially and adversely affected.

Our historical and future budgets for operating expenses, capital expenditures, operating leases and service contracts are based upon our assumptions as to the anticipated market acceptance of our products.

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Because of the lengthy lead time required for our product development and the changes in technology that typically occur during such period, it is difficult to estimate customer demand for a product accurately. If our products do not achieve expected customer demand, our business, financial condition, results of operation and cash flows could be materially and adversely affected.

If Our Contract Manufacturers Fail To Deliver Quality Products At Reasonable Prices And On A Timely Basis, Our Results Of Operations And Financial Condition Could Be Materially Affected.

We are increasing our use of contract manufacturers as an alternative to our own manufacturing of products. If these contract manufacturers do not fulfill their obligations to us, or if we do not properly manage these relationships and the transition of production to these contract manufacturers, our existing customer relationships may suffer. In addition, by undertaking these activities, we run the risk that the reputation and competitiveness of our products and services may deteriorate as a result of the reduction of our control over quality and delivery schedules. We also may experience supply interruptions, cost escalations and competitive disadvantages if our contract manufacturers fail to develop, implement or maintain manufacturing methods appropriate for our products and customers.

Our supply chain and manufacturing process relies on accurate forecasting to provide us with optimal margins and profitability. Because of market uncertainties, forecasting is becoming much more difficult. In addition, as we come to rely more heavily on contract manufacturers, we may have fewer personnel resources with expertise to manage these third-party arrangements.

Industry Demand For Skilled Employees, Particularly Scientific And Technical Personnel With Compound Semiconductor Experience, Exceeds The Number Of Skilled Personnel Available.

Our future success depends, in part, on our ability to attract and retain certain key personnel, including scientific, operational and management personnel. The competition for attracting and retaining these employees, especially scientists and technical personnel, is intense. Because of the intense competition for these skilled employees, we may be unable to retain our existing personnel or attract additional qualified employees in the future. If we are unable to retain our skilled employees and attract additional qualified employees to the extent necessary to keep up with our business demands and changes, our financial condition, results of operations and cash flows may be materially and adversely affected.

Protecting Our Trade Secrets And Obtaining Patent Protection Is Critical To Our Ability To Effectively Compete For Business.

Our success and competitive position depend on protecting our trade secrets and other intellectual property. Our strategy is to rely both on trade secrets and patents to protect our manufacturing and sales processes and products. Reliance on trade secrets is only an effective business practice insofar as trade secrets remain undisclosed and a proprietary product or process is not reverse engineered or independently developed. We take certain measures to protect our trade secrets, including executing non-disclosure agreements with our employees, our joint venture partner, customers and suppliers. If parties breach these agreements or the measures we take are not properly implemented, we may not have an adequate remedy. Disclosure of our trade secrets or reverse engineering of our proprietary products, processes or devices could materially and adversely affect our business, financial condition, results of operations and cash flows.

There is also no assurance that any patents will afford us commercially significant protection of our technologies or that we will have adequate resources to enforce our patents. We are actively pursuing patents on some of our recent inventions. In addition, the laws of certain other countries may not protect our intellectual property to the same extent as U.S. laws.

Our Failure To Obtain Or Maintain The Right To Use Certain Intellectual Property May Adversely Affect Our Financial Results.

The compound semiconductor, optoelectronics, and fiber optic communications industries are characterized by frequent litigation regarding patent and other intellectual property rights. From time to time we have received and may receive in the future, notice of claims of infringement of other parties' proprietary rights and licensing offers to commercialize third party patent rights. Although we are not currently involved in any litigation relating to our intellectual property, there can be no assurance that:

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In addition, effective copyright and trade secret protection may be unavailable or limited in certain foreign countries. Litigation, which could result in substantial cost to us and diversion of our resources, may be necessary to defend our rights or defend us against claimed infringement of the rights of others.

Our Management's Stock Ownership Gives Them The Power To Control Business Affairs And Prevent A Takeover That Could Be Beneficial To Unaffiliated Shareholders.

Certain members of our management, specifically Thomas J. Russell, Chairman of our Board, Reuben F. Richards, Jr., President, Chief Executive Officer and a director, and Robert Louis-Dreyfus, a director, are former members of Jesup & Lamont Merchant Partners, L.L.C. They collectively beneficially own more than 20% of our common stock. Accordingly, such persons will continue to hold sufficient voting power to control our business and affairs for the foreseeable future. This concentration of ownership may also have the effect of delaying, deferring or preventing a change in control of our company, which could have a material adverse effect on our stock price.

Unsuccessful Control Of The Hazardous Raw Materials Used In Our Manufacturing Process Could Result In Costly Remediation Fees, Penalties Or Damages Under Environmental And Safety Regulations.

The production of wafers and devices involves the use of certain hazardous raw materials, including, but not limited to, ammonia, gallium, phosphine and arsine. If our control systems are unsuccessful in preventing a release of these materials into the environment or other adverse environmental conditions occur, we could experience interruptions in our operations and incur substantial remediation and other costs. Failure to comply with environmental and health and safety laws and regulations may materially and adversely affect our business, financial condition, results of operations and cash flows.

Recently Enacted And Proposed Regulatory Changes May Cause Us To Incur Increased Costs.

Recently enacted and proposed changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002, will increase our expenses as we evaluate the implications of new rules and devote resources to respond to the new requirements. In particular, we expect to incur additional SG&A expense as we implement Section 404 of the Sarbanes-Oxley Act, which requires management to report on, and our independent auditors to attest to, our internal controls. Compliance with these new rules will require management to devote substantial time and attention, which could prove to be disruptive to product development, marketing and other business activities. Further, the impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers, which could harm our business.

We May Have Difficulty Obtaining Director And Officer Liability Insurance In Acceptable Amounts For Acceptable Rates Which Could Impair Our Ability To Recruit and Retain Qualified Officers and Directors.

Like most other public companies, we carry insurance protecting our officers and directors against claims relating to the conduct of our business. Historically, this insurance covered, among other things, the costs incurred by companies and their management to defend against and resolve claims relating to management conduct and results of operations, such as securities class action claims. These claims typically are extremely expensive to defend against and resolve. Hence, as is customary, we purchase and maintain insurance to cover some of these costs. We pay significant premiums to acquire and maintain this insurance, which is provided by third-party insurers, and we agree to underwrite a portion of such exposures under the terms of the insurance coverage. Over the last several years, the premiums we have paid for this insurance have increased substantially. One consequence of the current economic environment and decline in stock prices has been a substantial increase in the number of securities class

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actions and similar claims brought against public corporations and their management. Consequently, insurers providing director and officer liability insurance have in recent periods sharply increased the premiums they charge for this insurance, raised retentions (that is, the amount of liability that a company is required to pay to defend and resolve a claim before any applicable insurance is provided), and limited the amount of insurance they will provide. Moreover, insurers typically provide only one-year policies.

Each year we negotiate with insurers to renew our director and officer insurance. Particularly in the current economic environment, we cannot assure you that in the future we will be able to obtain sufficient director and officer liability insurance coverage at acceptable rates and with acceptable deductibles and other limitations. Failure to obtain such insurance could materially harm our financial condition in the event that we are required to defend against and resolve any future securities class actions or other claims made against us or our management arising from the conduct of our operations. Further, the inability to obtain such insurance in adequate amounts may impair our future ability to retain and recruit qualified officers and directors.

Our Business Or Our Stock Price Could Be Adversely Affected By Issuance Of Preferred Stock.

Our board of directors is authorized to issue up to 5,882,352 shares of preferred stock with such dividend rates, liquidation preferences, voting rights, redemption and conversion terms and privileges as our board of directors, in its sole discretion, may determine. The issuance of shares of preferred stock may result in a decrease in the value or market price of our common stock, or our board of directors could use the preferred stock to delay or discourage hostile bids for control of us in which shareholders may receive premiums for their common stock or to make the possible sale of EMCORE or the removal of our management more difficult. The issuance of shares of preferred stock could adversely affect the voting and other rights of the holders of common stock and may depress the price of the Company's stock.

Certain Provisions Of New Jersey Law And Our Charter May Make A Takeover Of Our Company Difficult Even If Such Takeover Could Be Beneficial To Some Of Our Shareholders.

New Jersey law and our certificate of incorporation, as amended, contain certain provisions that could delay or prevent a takeover attempt that our shareholders may consider in their best interests. Our board of directors is divided into three classes. Directors are elected to serve staggered three-year terms and are not subject to removal except for cause by the vote of the holders of at least 80% of our capital stock. In addition, approval by the holders of 80% of our voting stock is required for certain business combinations unless these transactions meet certain fair price criteria and procedural requirements or are approved by two-thirds of our continuing directors. We may in the future adopt other measures that may have the effect of delaying or discouraging an unsolicited takeover, even if the takeover were at a premium price or favored by a majority of unaffiliated shareholders. Certain of these measures may be adopted without any further vote or action by our shareholders, and this could depress the price of the Company's common stock.

The Price Of Our Common Stock Has Fluctuated Widely In The Last Year And May Fluctuate Widely In The Future.

Our common stock is traded on the NASDAQ National Market, which has experienced and may continue to experience significant price and volume fluctuations that could adversely affect the market price of our common stock without regard to our operating performance. In addition, we believe that factors such as quarterly fluctuations in financial results, earnings below analysts' estimates, and financial performance and other activities of other publicly traded companies in the semiconductor industry could cause the price of our common stock to fluctuate substantially. In addition, in recent periods, our common stock, the stock market in general, and the market for shares of small capitalization and semiconductor industry-related stocks in particular, have experienced extreme price fluctuations which have often been unrelated to the operating performance of affected companies. Any similar fluctuations in the future could adversely affect the market price of our common stock.

Our stock price has fluctuated widely in the last year and may fluctuate widely in the future. In fiscal 2003, our stock price has been as high as $3.98 per share and as low as $0.98 per share. Volatility in the price of our common stock may be caused by other factors outside of our control and may be unrelated or disproportionate to our operating results.

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Item 2. Properties

The following chart contains certain information regarding each of EMCORE's principal facilities, all of which are used by our components and subsystems segment. Except for the storage facility located in Somerset, NJ, each of these facilities contains office space, marketing and sales, and research and development (R&D) space. EMCORE also leases office space in Santa Clara, California, China, South Korea and Taiwan, as well as a small manufacturing/R&D facility in Downers Grove, Illinois.

Location

Function

Sq. Feet

Terms

Somerset, New Jersey

Corporate Headquarters Manufacturing for RF materials and MR sensors Storage facility

40,000         19,500              47,000

Lease expires in 2005(1) Lease expires in 2005(2)      Lease expires in 2006(1)(3)

Albuquerque, New Mexico

Manufacturing buildings for solar cells, VCSELs and fiber optic components

145,000

Owned by EMCORE(4)

City of Industry, California

Manufacturing building for solar panels

71,699

Lease expires in 2005(1)

Alhambra, California

Manufacturing buildings for CATV and Satcom products

75,000

Leases expire in 2007(1)

Item 3.    Legal Proceedings

We have applied for and maintained export licenses through the U.S. Department of Commerce ("DOC") since 1996. These licenses authorized us to export MOCVD equipment and other materials. In February 2003, we discovered that we had failed to obtain export licenses for a total of 14 MOCVD reactor shipments to Taiwan and one such shipment to Singapore between 1997 and 1999. In May 2003, pursuant to Section 764.5 of the Export Administration Regulations, we filed a Voluntary Disclosure with the DOC disclosing these violations and related matters. We negotiated a monetary settlement with the DOC of $400,000 and accrued the settlement amount in the first quarter of Fiscal 2004. The settlement was signed by EMCORE on December 8, 2003, and is currently pending signature at the DOC. The settlement amount is to be paid in two installments. The first installment is to be paid within thirty days of execution of the document by the DOC, and the final installment is due one year from that date.

From time to time, we are involved in other lawsuits, claims, investigations and proceedings that arise in the ordinary course of business. There are no matters pending that we expect to be material in relation to our business, consolidated financial condition, results of operations or cash flows.

Item 4.    Submission of Matters to a Vote of Security Holders

Not applicable.

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PART II

Item 5.    Market for the Registrant's Common Equity and Related Shareholder Matters

EMCORE's common stock is traded on the NASDAQ National Market and is quoted under the symbol "EMKR". The following table sets forth the quarterly high and low sale prices for EMCORE's common stock during the two most recent fiscal years.

				high				low
Fiscal year ended September 30, 2002
First Quarter				$	17.04			$	7.67
Second Quarter				$	16.97			$	7.59
Third Quarter				$	10.48			$	3.60
Fourth Quarter				$	6.00			$	1.42
Fiscal year ended September 30, 2003
First Quarter				$	3.38			$	0.98
Second Quarter				$	2.50			$	1.65
Third Quarter				$	3.98			$	1.66
Fourth Quarter				$	3.90			$	2.40

The reported closing sale price of EMCORE's common stock on December 22, 2003 was $5.11 per share. As of December 12, 2003, EMCORE had approximately 5,371 shareholders of record.

EMCORE has never declared or paid dividends on its common stock since its formation. EMCORE currently does not intend to pay dividends on its common stock in the foreseeable future so that it may reinvest its earnings in its business. The payment of dividends, if any, in the future will be at the discretion of the Board of Directors.

On January 25, 2001, EMCORE purchased all of the outstanding shares of Analytical Solutions, Inc. (ASI), a New Mexico corporation that provides failure analysis and related services. In consideration for this purchase, EMCORE issued a total of 40,775 common shares to the 14 former ASI shareholders in a private placement under Section 4(2) of the Securities Act. In May 2002, EMCORE sold all of the outstanding shares of ASI back to one of its original shareholders in return for a promissory note in the principal amount of approximately $3.0 million and bearing interest at 5.71% per annum. This note matures on May 3, 2008 and is to be repaid through the issuance of credits against future ASI services over the term of the note.

Equity Compensation Plan Information

The following table sets forth, as of September 30, 2003, the number of securities outstanding under each of EMCORE's stock option plans, the weighted average exercise price of such options, and the number of options available for grant under such plans.

Plan Category				Number of securities to be issued upon exercise of outstanding options, warrants and rights				Weighted average exercise price of outstanding options, warrants and rights				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders					5,749,146			$	3.98				575,832
Equity compensation plans not approved by security holders					1,920				0.23				–
Totals					5,751,066			$	3.98				575,832

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Item 6.    Selected Financial Data

The following selected consolidated financial data for EMCORE's five most recent fiscal years ended September 30, 2003 is qualified by reference to and should be read in conjunction with the Financial Statements and the Notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Annual Report. The Statement of Operations data set forth below with respect to fiscal years 2003, 2002 and 2001 and the Balance Sheet data as of September 30, 2003 and 2002 are derived from EMCORE's audited financial statements included elsewhere in this document. The Statement of Operations data for fiscal years 2000 and 1999 and the Balance Sheet data as of September 30, 2001, 2000 and 1999 are derived from audited financial statements not included herein. All share amounts have been restated to reflect EMCORE's two-for-one (2:1) common stock split that was effective on September 18, 2000.

Significant transactions that affect the comparability of EMCORE's operating results and financial condition:

				As of September 30,
				2003				2002				2001				2000				1999
				(in thousands)
Balance Sheet data
Cash, cash equivalents and marketable securities.				$	28,439			$	84,181			$	147,661			$	101,745			$	7,165
Working capital					55,543				111,825				201,213				111,587				20,690
Total assets					232,439				285,943				403,553				243,902				99,611
Long-term liabilities					161,791				175,087				175,046				1,295				9,038
Redeemable convertible preferred stock					—				—				—				—				14,193
Shareholders' equity				$	44,772			$	81,950			$	197,127			$	199,322			$	61,623

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				For the fiscal years ended September 30,
				2003				2002				2001				2000				1999
				(in thousands, except per share amounts)
Statements of Operations data
Revenues				$	113,106			$	87,772			$	184,614			$	104,506			$	58,341
Cost of revenues					98,589				88,414				114,509				61,301				33,158
Gross profit (loss)					14,517				(642	)			70,105				43,205				25,183
Operating expenses:
Selling, general and administrative					28,990				28,227				29,851				21,993				14,433
Goodwill amortization					—				—				1,147				4,392				4,393
Research and development					22,181				40,970				53,391				32,689				20,713
(Gain) loss from debt extinguishment (1)					(6,614	)			—				—				—				1,334
Impairment and restructuring					—				36,721				—				—				—
Total operating expenses					44,557				105,918				84,389				59,074				40,873
Operating loss					(30,040	)			(106,560	)			(14,284	)			(15,869	)			(15,690	)
Other (income) expense:
Interest (income) expense, net					7,257				6,107				(2,048	)			(4,492	)			866
Imputed warrant interest expense					—				—				—				843				1,136
Other (income) expense					—				14,388				(15,920	)			—				—
Equity in net loss of unconsolidated affiliates					1,228				2,706				12,326				13,265				4,997
Total other (income) expense					8,485				23,201				(5,642	)			9,616				6,999
Loss before cumulative effect of a change in accounting principle					(38,525	)			(129,761	)			(8,642	)			(25,485	)			(22,689	)
Cumulative effect of change in accounting principle					—				—				(3,646	)			—				—
Net loss				$	(38,525	)		$	(129,761	)		$	(12,288	)		$	(25,485	)		$	(22,689	)
Per share data
Weighted average shares used in calculating per share data					36,999				36,539				34,438				31,156				21,180
Loss per basic and diluted share before cumulative effect of change in accounting principle				$	(1.04	)		$	(3.55	)		$	(0.25	)		$	(0.82	)		$	(1.09	)
Net loss per basic and diluted share				$	(1.04	)		$	(3.55	)		$	(0.36	)		$	(0.82	)		$	(1.09	)

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

This report includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements are based largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. These forward looking statements may be identified by the use of words such as "expects", "anticipates", "intends", "plans", "believes", "estimate", "target", "may", "will" and variations of these words and similar expressions. These forward-looking statements are subject to business, economic and other risks and uncertainties, and actual results may differ materially from those discussed in these forward-looking statements. Factors that could contribute to these differences include, but are not limited to, those discussed under "Risk Factors", "Forward-Looking Statements" and elsewhere in this report. The cautionary statements made in this report should be read as being applicable to all forward-looking statements wherever they appear in this report. This discussion should be read in conjunction with the Consolidated Financial Statements, including the related footnotes.

Company Overview

EMCORE Corporation, a New Jersey corporation established in 1984, offers a broad portfolio of compound semiconductor-based components and subsystems for the rapidly expanding broadband and wireless communication markets and the solid-state lighting industry. EMCORE continues to expand its comprehensive product portfolio to enable the transport of voice, data and video over copper, hybrid fiber/coax (HFC), fiber, satellite and wireless communication networks. The company is building upon its leading-edge compound semiconductor materials and device expertise to provide cost-effective components and subsystems for the cable television (CATV), telecommunications, data and storage, satellite and wireless communications markets. EMCORE supports these end markets through its EMCORE Fiber Optics, EMCORE Photovoltaics and EMCORE Electronic Materials and Devices product lines. Through its 49% ownership participation in GELcore, LLC, EMCORE plays a vital role in developing and commercializing next-generation LED technology for use in the general illumination market.

Segment Data

EMCORE had two reportable operating segments: the systems and the components and subsystems segment. The segments reported are the segments for which separate financial information is available and evaluated regularly by management in deciding how to allocate resources and in assessing performance.

The systems segment was our TurboDisc systems business which designed, developed and manufactured metal organic chemical vapor deposition (MOCVD) systems and manufacturing processes. Systems segment revenues were derived primarily from sales of TurboDisc MOCVD systems, as well as spare parts, services, and other related products. In fiscal 2004, EMCORE will report first quarter results for the systems segment as a discontinued operation due to the divestiture.

The components and subsystems segment is comprised of our Fiber Optics, Photovoltaics and Electronic Materials and Devices product lines. EMCORE's Fiber Optics product line supports our CATV, telecommunications, data and storage and Satcom target markets. Specific products for this communications-related product line include optical components and subsystems for CATV and FTTx, VCSEL and PIN photodiodes components, 10G LX4, CX4, TOSA, ROSA packaged parts and modules, and Satcom transmitter and receiver components. EMCORE's Photovoltaic revenues are derived primarily from the sales of solar power conversion products including solar cells, covered interconnect solar cells (CICs) and solar panels. Revenues from the Electronic Materials and Devices product line include wireless products, such as RF materials including HBTs and enhancement-mode pHEMTS, and also MR sensors and process development technology.

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Summarized financial information for the reportable segments as of and for the years ended September 30, 2003, 2002 and 2001 is shown below. There are no intercompany sales transactions between the two segments. The accounting policies of the segments are described in the footnotes to the financial statements.

				For the year ended September 30, 2003
				Systems segment				Components and subsystems segment				Unallocated expenses				TOTAL
				(in thousands)
STATEMENTS OF OPERATIONS
Revenues				$	52,681			$	60,425			$	—			$	113,106
Cost of revenues					36,545				62,044				—				98,589
Gross profit (loss)					16,136				(1,619	)			—				14,517
Gross margin					30.6	%			(2.7	%)			—				12.8	%
Operating expenses:
Selling, general and administrative					9,476				19,514				—				28,990
Research and development					5,773				16,408				—				22,181
Gain from debt extinguishment					—				—				(6,614	)			(6,614	)
Total operating expenses					15,249				35,922				(6,614	)			44,557
Operating income (loss)					887				(37,541	)			6,614				(30,040	)
Other expenses:
Interest expense, net					—				—				7,257				7,257
Equity in joint venture					—				—				1,228				1,228
Total other expenses					—				—				8,485				8,485
Net income (loss)				$	887			$	(37,541	)		$	(1,871	)		$	(38,525	)

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				For the year ended September 30, 2002																For the year ended September 30, 2001
				Systems segment 2002				Components and subsystems segment 2002				Unallocated expenses 2002				TOTAL 2002				Systems segment 2001				Components and subsystems segment 2001				Unallocated expenses 2001				TOTAL 2001
				(in thousands)
STATEMENTS OF OPERATIONS
Revenues				$	35,878			$	51,894			$	—			$	87,772			$	131,141			$	53,473			$	—			$	184,614
Cost of revenues					25,650				62,764				—				88,414				72,725				41,784				—				114,509
Gross profit (loss)					10,228				(10,870	)			—				(642	)			58,416				11,689				—				70,105
Gross margin					28.5	%			(20.9	%)			—				(0.7	%)			44.5	%			21.9	%			—				38.0	%
Operating expenses:
Selling, general and administrative					15,534				12,693				—				28,227				15,748				14,103				—				29,851
Research and development					12,878				28,092				—				40,970				11,821				41,570				—				53,391
Goodwill amortization					—				—				—				—				—				1,147				—				1,147
Impairment and restructuring					5,085				31,636				—				36,721				—				—				—				—
Total operating expenses					33,497				72,421				—				105,918				27,569				56,820				—				84,389
Operating income (loss)					(23,269	)			(83,291	)			—				(106,560	)			30,847				(45,131	)			—				(14,284	)
Other expenses:
Interest expense, net					—				—				6,107				6,107				—				—				(2,048	)			(2,048	)
Other (income) expense					—				—				14,388				14,388				—				—				(15,920	)			(15,920	)
Equity in joint ventures					—				—				2,706				2,706				—				—				12,326				12,326
Total other expenses					—				—				23,201				23,201				—				—				(5,642	)			(5,642	)
Income (loss) before cumulative effect of a change in accounting principle					(23,269	)			(83,291	)			(23,201	)			(129,761	)			30,847				(45,131	)			5,642				(8,642	)
Cumulative effect of a change in accounting principle					—				—				—				—				(3,646	)			—				—				(3,646	)
Net income (loss)				$	(23,269	)		$	(83,291	)		$	(23,201	)		$	(129,761	)		$	27,201			$	(45,131	)		$	5,642			$	(12,288	)

In fiscal 2002, EMCORE recorded pre-tax charges to income totaling $51.2 million, which included fixed asset impairment charges of $34.8 million, excess inventory reserve of $11.9 million, loss provision for accounts receivable of $2.6 million and restructuring charges of $1.9 million. In January 2003, EMCORE acquired Ortel, which contributed approximately $23.6 million of fiber optic revenues in fiscal 2003.

Customers

During fiscal 2003, revenues from Cree Inc., associated with the systems segment, represented 11.5% of total revenue. During fiscal 2002, revenues from Motorola, associated with both the systems and components and subsystems segments represented 12.9% of total revenue. In fiscal 2001, no single customer accounted for more than 10% of total revenue.

EMCORE has generated a significant portion of its sales to customers outside the United States. Historically, EMCORE has received most payments for products and services in U.S. dollars, and therefore, EMCORE does not anticipate that fluctuations in any currency will have a material effect on its financial condition or results of operations. The following chart contains a breakdown of EMCORE's consolidated revenues by geographic region:

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				For the fiscal years ended September 30,
Region				2003								2002								2001
				Revenue				% of revenue				Revenue				% of revenue				Revenue				% of revenue
				(in thousands)
United States				$	64,189				56.8	%		$	58,844				67.0	%		$	96,551				52.3	%
Asia					34,132				30.2	%			15,268				17.4	%			76,848				41.6	%
Europe					14,785				13.0	%			13,660				15.6	%			11,215				6.1	%
TOTAL				$	113,106				100	%		$	87,772				100	%		$	184,614				100	%

In fiscal 2002, sales to Asia and the United States declined dramatically because of a large decrease in capital spending by our customers and a consequent decrease in demand for our MOCVD systems. Sales to the United States include sales to Canada which have not, historically, been material.

Backlog

As of September 30, 2003, EMCORE had a backlog (not including our systems-segment backlog of $18.4 million) believed to be firm of approximately $33.1 million. This compares to a backlog of $19.3 million (exclusive of systems-segment backlog) as reported at the end of the prior year. Half of the increase in backlog was attributable to the Ortel acquisition. Historically, significant portions of our components and subsystems revenue are not reported in backlog since our customers have reduced lead times. Many of our components and subsystems sales usually occur within the same month when the purchase order is received. The backlog does not include orders for product that have not met qualification specifications. We believe the entire backlog could be filled during fiscal 2004, however, especially given the current market environment, customers may delay shipment of certain orders. Backlog also could be adversely affected if customers unexpectedly cancel purchase orders accepted by us.

Critical Accounting Policies

The preparation of financial statements requires management to make assumptions and estimates that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results may differ from those estimates. Critical accounting policies include those policies that are reflective of significant judgments and uncertainties, which potentially could produce materially different results under different assumptions and conditions. The significant accounting policies that we believe are the most critical to the understanding of reported financial results include the following.

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In fiscal 2002, EMCORE recorded a $11.9 million inventory charge of which $4.1 million was related to the systems segment and $7.8 million was related to the components and subsystems segment. The inventory charge was for excess raw material and finished goods inventory that EMCORE believed it was carrying as a result of market conditions. In fiscal 2003, EMCORE recorded a $2.0 million inventory charge related to its fiber optic product line. The write-down was attributable to certain transceiver devices that were later determined to be non-saleable because of design deficiencies.

Revenue from the systems segment was recognized upon shipment where product has met customer's specifications and when the title and ownership have passed to the customer. EMCORE's billing terms on system sales generally included a holdback of 10-20% on the total purchase price subject to completion of the installation and final acceptance process at the customer's site. EMCORE deferred this portion of revenue related to installation and final acceptance until such installation and final acceptance had been completed. In fiscal 2004, EMCORE will report first quarter results of the systems segment as a discontinued operation due to the divestiture.

Revenue from the components and subsystems segment is recognized upon shipment provided we have received a signed purchase order, the price is fixed, the product meets the customers' specifications, title and ownership have transferred to the customer and there is reasonable assurance of collection of the sales proceeds. The majority of our products have shipping terms that are FOB or FCA shipping point. The difference between FOB and FCA is that under FCA terms, the customer designates a shipping carrier of choice to be used. Under both terms, we fulfill the obligation of delivery when the goods are handed over to the carrier at our shipping dock. If inventory is maintained at a consigned location, revenue is recognized when our customer pulls product for its use.

As a result of the Tecstar acquisition in 2002, EMCORE records revenues from solar panel contracts using the percentage-of-completion method where the elapsed time from award of a contract to completion of performance tends to exceed 6 months. Revenue is recognized in proportion to actual costs incurred compared to total anticipated costs expected to be incurred for each contract. If estimates of costs to complete long-term contracts indicate a loss, a provision is made for the total loss anticipated. EMCORE has numerous contracts that are in various stages of completion. Such contracts require estimates to determine the appropriate cost and revenue recognition. EMCORE uses all available information in determining dependable estimates of the extent of progress towards completion, contract revenues and contract costs. Estimates are revised as additional information becomes available. During fiscal 2003, EMCORE recorded approximately $0.2 million in anticipated losses on certain long-term contracts.

Contract revenue represents reimbursement by various U.S. Government entities to aid in the development of new technology. The contract funding may be based on either a cost-plus or a

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cost-share arrangement. Cost-plus funding is determined based on actual costs plus a set percentage margin. For the cost-share contracts, the actual costs relating to the activities to be performed by us under the contract are divided between the U.S. Government and us based on the terms of the contract. The government's cost share is then paid to us. A contract is considered complete when all significant costs have been incurred, and the research reporting requirements to the customer have been met. The contracts typically require the submission of a written report that documents the results of such research, as well as some material deliverables. The revenue and expense classification for contract activities is based on the nature of the contract. For contracts where we anticipate that funding will exceed direct costs over the life of the contract, funding is reported as contract revenue and all direct costs are reported as costs of contract revenue. For contracts under which we anticipate that direct costs of the activities subject to the contract will exceed amounts to be funded over the life of the contract, costs over and above the funded amount are reported as research and development expenses. Revenues from Government contracts amounted to approximately $5.2 million, $3.3 million and $2.5 million for the years ended September 30, 2003, 2002 and 2001, respectively.

EMCORE also provides service for its products. Revenue from time and materials based service arrangements is recognized as the service is performed. Revenue from service contracts is recognized ratably over the term of such service contracts. Service revenue is insignificant for all periods presented.

In rare occurrences, at the customer's written request, EMCORE enters into bill and hold transactions whereby title transfers to the customer, but the product does not ship until a specified later date. EMCORE recognizes revenues associated with the sale of product from bill and hold arrangements when the product is complete, ready to ship, and all bill and hold criteria have been met.

The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles. There are also areas in which management's judgment in selecting any available alternative would not produce a materially different result. See our audited consolidated financial statements and notes thereto included in this Annual Report on Form 10-K which contain a discussion of our accounting policies and other disclosures required by accounting principles generally accepted in the United States.

Recent Accounting Pronouncements

In November 2002, the Financial Accounting Standards Board (FASB) issued Financial Interpretation No. 45 (FIN 45), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 clarifies that a guarantor is required to recognize, at the inception of the guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. FIN 45 also requires enhanced and additional disclosures of guarantees in financial statements ending after December 15, 2002. As discussed in the footnotes to the financial statements, EMCORE has guaranteed a loan associated with its GELcore joint venture.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities. This interpretation defines when a business enterprise must consolidate a variable interest entity. This

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interpretation applies immediately to variable interest entities created after January 31, 2003 and became effective for all other transactions as of July 1, 2003. However, in October 2003 the FASB permitted companies to defer the July 1, 2003 effective date to December 31, 2003, in whole or in part, and indicated that it would provide further clarification of this interpretation before December 31, 2003. The Company has determined that it is not reasonably probable that it will be required to consolidate or disclose information about a variable interest entity.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The changes in SFAS No. 149 improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. In particular, SFAS No. 149 (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative discussed in paragraph 6(b) of SFAS No. 133, (2) clarifies when a derivative contains a financing component, (3) amends the definition of an underlying to conform it to language used in FIN 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, and (4) amends certain other existing pronouncements. Those changes will result in more consistent reporting of contracts as either derivatives or hybrid instruments. SFAS No. 149 is to be applied prospectively to contracts entered into or modified after June 30, 2003, with certain exceptions, and for hedging relationships designated after June 30, 2003. Adopting this statement did not have a material impact on the financial position, results of operations, or cash flows of EMCORE.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities. Adopting this statement did not have a material impact on the financial position, results of operations, or cash flows of EMCORE.

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Results of Operations

The following table sets forth the consolidated statements of operations data of EMCORE expressed as a percentage of total revenues for the fiscal years ended September 30, 2003, 2002 and 2001:

				Fiscal Years Ended September 30,
				2003				2002				2001
Statements of Operations Data:
Revenues					100.0	%			100.0	%			100.0	%
Cost of revenues					87.2	%			100.7	%			62.0	%
Gross profit (loss)					12.8	%			(0.7	)%			38.0	%
Operating expenses:
Selling, general and administrative					25.6	%			32.2	%			16.2	%
Research and development					19.6	%			46.7	%			28.9	%
Gain on debt extinguishment					(5.8	)%			—				—
Goodwill amortization					—				—				0.6	%
Impairment and restructuring					—				41.8	%			—
Total operating expenses					39.4	%			120.7	%			45.7	%
Operating loss					(26.6	)%			(121.4	)%			(7.7	)%
Other (income) expense:
Interest (income) expense, net					6.4	%			7.0	%			(1.1	)%
Other income (expense)					—				16.4	%			(8.6	)%
Equity in net loss of unconsolidated affiliates					1.1	%			3.1	%			6.7	%
Total other (income) expense					7.5	%			26.5	%			(3.0	)%
Loss before cumulative effect of a change in accounting principle					(34.1	)%			(147.9	)%			(4.7	)%
Cumulative effect of a change in accounting principle					—				—				(2.0	)%
Net loss					(34.1	)%			(147.9	)%			(6.7	)%

Comparison of Fiscal Years Ended September 30, 2003 and 2002

Revenue.     EMCORE's consolidated revenue increased $25.3 million or 29% to $113.1 million in fiscal 2003 from $87.8 million in fiscal 2002. Higher revenue was primarily attributable to increased shipments of MOCVD systems and the Ortel acquisition, which contributed $23.6 million since being acquired in January 2003. International sales accounted for 43% of revenues in fiscal 2003 and 33% of revenues in fiscal 2002.

Systems segment revenue increased $16.8 million or 47% to $52.7 million in fiscal 2003 from $35.9 million in fiscal 2002. Systems segment sales represented 47% and 41% of EMCORE's total revenues in fiscal 2003 and 2002, respectively. The number of MOCVD production systems shipped during the year increased 59% to 27 systems in fiscal 2003 from 17 systems in fiscal 2002. The average selling price for MOCVD systems sold remained relatively flat at $1.4 million in fiscal 2003 and 2002. Component and service revenue in fiscal 2003 of $8.3 million increased 14% when compared to $7.3 million recorded in the prior year. In fiscal 2004, EMCORE will report first quarter results for the systems segment as a discontinued operation due to the divestiture.

Components and subsystems segment revenue increased $8.5 million or 16% to $60.4 million in fiscal 2003 from $51.9 million in fiscal 2002. Components and subsystems segment sales represented 53% and 59% of EMCORE's total revenues in fiscal 2003 and 2002, respectively. On a product line basis, sales of fiber optic components and subsystems devices increased $23.6 million or 260%, photovoltaic products decreased $5.4 million or 23% and electronic materials and devices decreased $9.6 million or 50% from the prior year.

EMCORE's Fiber Optics product line supports our CATV, telecommunications, data and storage and Satcom target markets. Revenues from VCSEL die and chip products, packaged products that include

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TOSA, ROSA and transceiver module level products were $9.1 million for both fiscal 2003 and 2002. On a quarterly basis, fiscal 2003 digital fiber optic revenues were $2.3 million, $2.6 million, $3.0 million and $1.2 million. Sales of digital products represented 8% and 10% of EMCORE's total revenues in fiscal 2003 and 2002, respectively. In fiscal 2003, VCSEL die and chip sales prices on average decreased slightly due to increasing price competitiveness in the marketplace, however, an increase in the number of units shipped helped to maintain revenue levels. In the fourth quarter of fiscal 2003, the die and chip product line experienced cancellations of significant orders from certain customers due to a perceived quality problem that was clarified and resolved in October 2003. Also, during the fourth quarter of fiscal 2003, EMCORE experience product returns related to certain transceiver module products. The transceiver devices were later determined to be non-saleable because of design deficiencies and $2.0 million of inventory costs associated with the products were written-off during the period. In September 2003, EMCORE received an $11.0 million purchase order from Cisco Systems for a LX4 transceiver module product. In October 2003, EMCORE purchased Molex's 10G Ethernet transceiver business, which was primarily focused on LX4 Xenpak and X2 form factor products to help ensure deliverability of products to Cisco. As a result, fiscal 2004 first quarter digital revenues are expected to increase 150% sequentially and exceed $3.0 million due to LX4 module sales and increased volumes of VCSEL-related product.

Fiber optic products acquired through the Ortel acquisition primarily consist of fiber optic transmitter and receiver CATV products, Satcom transmission links and PON and FTTx systems. On a quarterly basis, beginning with the second quarter, Ortel's revenues were $7.1 million, $8.2 million and $8.2 million. Sales of Ortel's products represented 21% of EMCORE's total revenues in fiscal 2003. Recently, cable operators and traditional telephone service providers have been competing with each other to offer the lowest price for unlimited "triple play" (voice, data and video) communications through one cable. As the market leader in RF transmission over fiber for the cable industry, Ortel is enabling Multi-System Operators (MSO's) to offer "triple play" to meet the exploding demand for on-demand, high-speed interactive and other new services. In response to the "triple play" threat from MSOs, the Regional Bell operating companies (RBOCs) also plan to offer "triple play" service over new deployment of fiber-to-the-premise systems. These growing applications should increase demand for FTTx subsystems which are manufactured and marketed by our Ortel division.

Photovoltaic revenues include the sale of epi wafers, solar cells, covered interconnect solar cells (CICs) and solar panels. Fiscal 2003 photovoltaic revenues decreased to $18.2 million from $23.6 million in fiscal 2002. The annual decrease is attributable to prior period weakness in satellite infrastructure spending, delays in government program launch schedules, significant sales price erosion on solar products and the delay of two significant solar contracts which have since been awarded to EMCORE. On a quarterly basis, fiscal 2003 photovoltaic revenues were $5.1 million, $5.2 million, $3.0 million and $4.9 million. Photovoltaic sales fluctuate quarterly due to the timing of large solar panel shipments or completion of significant research contracts. Sales in the photovoltaic group represented 16% and 27% of EMCORE's total revenues in fiscal 2003 and 2002, respectively. The worldwide satellite industry has seen substantial improvement in late 2003, with awards increasing more than 300% from five in 2002 to 17 thus far in 2003. In addition, the industry has seen consolidation into more financially stable institutions. For example, Intelsat Ltd. has agreed to purchase the North American satellites of satellite maker and operator Loral Space & Communications Ltd. As a result, we are seeing progress toward the satellite industry developing into a communications backbone for video, voice and data.

Sales of electronic materials and devices, which include RF materials and MR sensors, decreased to $9.6 million in fiscal 2003 from $19.2 million in fiscal 2002 due to a significant decline in orders from Motorola. EMCORE broadened its relationship with Motorola by entering into an agreement to sell them two EMCORE MOCVD production systems, and to co-develop and transition into production certain RF materials. In light of the fact that Motorola has now developed the capacity to supply a portion of their needs internally and due to the delayed introduction of InGaP HBTs into GSM handsets, annual RF materials related revenues have decreased significantly. On a quarterly basis, fiscal 2003 revenues from electronic materials and devices were $2.1 million, $2.0 million, $2.8 million and $2.7 million. This market is highly competitive, raw materials are extremely expensive and average selling prices have been declining over the past several years.