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Emcore Corp · 10-K · For 9/30/04

Filed On 12/14/04 12:51pm ET   ·   SEC File 0-22175   ·   Accession Number 808326-4-40

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12/14/04  Emcore Corp                       10-K        9/30/04    9:379

Annual Report   ·   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Emcore Corporation Form 10-K for Fiscal Year 2004   HTML  1,274K 
 2: EX-4.3      Emcore Corporation Fy04 10-K Ex 4.3 - Feb 24, 2004  HTML    425K 
                          Indenture                                              
 3: EX-4.4      Emcore Corporation Fy04 10-K Ex 4.4 - Feb. 24,      HTML     81K 
                          2004 Note                                              
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                          Subsidiaries                                           
 5: EX-23.1     Emcore Corporation Fy04 10-K Ex 23.1 - Independent  HTML      8K 
                          Auditors' Consent                                      
 6: EX-31.1     Emcore Corporation Fy04 10-K Ex 31.1 - Ceo 302      HTML     16K 
                          Certification                                          
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10-K   ·   Emcore Corporation Form 10-K for Fiscal Year 2004
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page
"Item 1
"Item 2
"Item 3
"Item 4
"Item 5
"Item 6
"Item 6, Selected Financial Data
"Item 7
"Item 7A
"Item 8
"Consolidated Statements of Operations for the years ended September 30, 2004, 2003 and 2002
"Consolidated Statements of Operations for the years ended September 30, 2004, 2003, 2002
"Consolidated Balance Sheets as of September 30, 2004 and 2003
"Consolidated Statements of Shareholders Equity for the years ended September 30, 2004, 2003 and 2002
"Consolidated Statements of Shareholders Equity for the years ended September 30, 2004, 2003, 2002
"Consolidated Statements of Cash Flows for the years ended September 30, 2004, 2003 and 2002
"Consolidated Statements of Cash Flows for the years ended September 30, 2004, 2003, 2002
"Notes to Consolidated Financial Statements
"Discontinued Operations
"Item 8, Note 8 -- Balance Sheet Data
"Report of Independent Registered Public Accounting Firm
"Item 9
"Item 9A
"Item 9B
"Item 10
"Item 11
"Item 12
"Item 13
"Item 14
"Item 15
"Signatures

This is an EDGAR HTML document rendered as filed.  [ Alternative Formats ]

  EMCORE Corporation Form 10-K for Fiscal Year 2004  
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-K
 
þ  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended:  September 30, 2004
or
o  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
Picture -- Emcore Logo -- emcore10k-fy200449
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, including 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  þ  No  o
 
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.  o
 
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes  þ  No  o
 
The aggregate market value of common stock held by non-affiliates of the registrant as of March 31, 2004 was approximately $147,175,335 (based on the closing sale price of $4.07 per share).
 
The number of shares outstanding of the registrant’s no par value common stock as of December 6, 2004 was 47,038,012.

DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the Definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held February 28, 2005 are incorporated by reference in Part III.
 

 
 
     
 
 

EMCORE Corporation
Form 10-K for the fiscal year ended September 30, 2004
 
INDEX

   
Part I
  
   
Item 1.
Business.
   
Item 2.
Properties.
   
Item 3.
Legal Proceedings.
   
Item 4.
Submission of Matters to a Vote of Security Holders.
   
Part II
  
   
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.
   
Item 6.
Selected Financial Data.
   
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operation.
   
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
   
Item 8.
Financial Statements and Supplementary Data.
   
 
Consolidated Statements of Operations for the years ended September 30, 2004, 2003 and 2002
   
 
Consolidated Balance Sheets as of September 30, 2004 and 2003
   
 
Consolidated Statements of Shareholders’ Equity for the years ended September 30, 2004, 2003 and 2002
   
 
Consolidated Statements of Cash Flows for the years ended September 30, 2004, 2003 and 2002
   
 
Notes to Consolidated Financial Statements
   
 
Report of Independent Registered Public Accounting Firm
   
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
   
Item 9A.
Controls and Procedures.
   
Item 9B.
Other Information.
   
Part III
  
   
Item 10.
Directors and Executive Officers of the Registrant.
   
Item 11.
Executive Compensation.
   
Item 12.
Security Ownership of Certain Beneficial Owners and Management.
   
Item 13.
Certain Relationships and Related Transactions.
   
Item 14.
Principal Accounting Fees and Services.
   
Part IV
  
   
Item 15.
Exhibits, Financial Statement Schedules.
   
 
SIGNATURES
   

 
 
     
 
 

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 expression.  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 Annual Report on Form 10-K 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 any and all related notes.

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 the company, the industry, and the economy in general;


 
·   Difficulties arising from the separation of the TurboDisc capital equipment business from EMCORE’s ongoing business lines;

 
·   Difficulties in integrating recent or future acquisitions into our operations;

 
·  

The expected level and timing of benefits to EMCORE from on-going cost reduction efforts, including (i) expected cost reductions and their impact on our financial performance, (ii) our continued leadership in technology and manufacturing in its markets, and (iii) our belief that the cost reduction efforts will not impact product development or manufacturing execution;


 
·   Expected improvements in our product and technology development programs;

 
·  

Whether our products will (i) be successfully introduced or marketed, (ii) be qualified and purchased by our customers, or (iii) perform to any particular specifications or performance or reliability standards; and/or


 
·  

Guidance provided by EMCORE regarding our expected financial performance in current or future periods, including, without limitation, with respect to anticipated revenues, income, or cash flows for any period in fiscal 2005 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:

 
·   EMCORE’s cost reduction efforts may not be successful in achieving their expected benefits, or may negatively impact our operations;

 
· 

The failure of our products (i) to perform as expected without material defects, (ii) to be manufactured at acceptable volumes, yields, and cost, (iii) to be qualified and accepted by our customers, and (iv) to successfully compete with products offered by our competitors; and/or


 
·  

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 on Form 10-K), 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; delays in developing and commercializing new products; and other factors.

 
We assume no obligation to update the matters discussed in this Annual Report on Form 10-K, 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 website 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 (EMCORE), a New Jersey corporation established in 1984, offers a broad portfolio of compound semiconductor-based components and subsystems for the broadband, fiber optic, satellite, and wireless communications markets.  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 networks.  EMCORE is building upon its leading-edge compound semiconductor materials and device expertise to provide cost-effective components and subsystems for the cable television (CATV), fiber-to-the-premise, business, curb or home (FTTP), telecommunications, data and storage, satellite, and wireless communications markets.

 
·  

CATV and FTTP Networks - The communications industry in which we participate continues to be dynamic.  Cable operators and telephone companies compete with each other to offer the lowest price for unlimited "triple play" (voice, data, and video) communications through a single network connection.  As a market leader in radio frequency (RF) transmission over fiber products for the CATV industry, EMCORE is enabling cable companies to offer multiple forms of communications to meet the expanding demand for high-speed Internet, on-demand and interactive video, and other new services (such as Voice over IP, or VoIP).  In response to this triple play strategy from the cable companies, the telephone companies also plan to offer competing voice, data, and video services through the deployment of new fiber-based systems.  These growing applications should increase demand for EMCORE’s FTTP products and subsystems.  Our CATV and FTTP products include broadcast analog and digital fiber optic transmitters, Quadrature Amplitude Modulation (QAM) transmitters, video receivers, Passive Optical Network (PON) transceivers, avalanche photodetectors (APD), PIN (P-type, intrinsic, and N-type semiconductor materials) photodetectors, and Distributed Feedback (DFB) and Fabry-Perot (FP) 1310 nanometer (nm) and 1550 nm analog and digital lasers.

      
 
·  

Telecommunications - Our state-of-the-art optical components and modules enable high-speed (up to an aggregate 40 Gb/s) optical interconnections that drive architectures in next-generation carrier class switching and routing networks.  Our parallel optical modules facilitate high channel count optical interconnects in multi-shelf central office equipment.  These systems sit in the network core and in key metro nodes of voice telephony and Internet infrastructures, and are highly expandable with pay-as-you-grow capacity scaling.  EMCORE sells its recently acquired OptoCubeTM transceiver product and other 4- and 12-channel parallel optics products to the telecom equipment industry.

            
 
·  

Data Communications - EMCORE’s leading-edge optical components and modules for data applications include 10G Ethernet LX4, 10G Ethernet CX4, SmartLinkTM optical Infiniband, and parallel optical modules for enterprise Ethernet and High Performance Computing (HPC), also called "Super Computing," applications.  These high speed modules enable switch-to-switch, router-to-router, and server-to-server backbone connections at aggregate speeds of 10 gigabits per second (Gb/s) and above.  Pluggable LX4 modules in X2 or XENPAK form factors provide a "pay-as-you-populate" cost structure during installation.  The LX4 can transmit data over both multi-mode and single-mode optical fiber, and currently is the only available option to transmit optical 10G Ethernet signals over 300 meters of legacy multi-mode fiber or 10 km of single-mode fiber.  CX4 modules similarly allow the cost-effective transmission of Ethernet signals over legacy copper cable.  EMCORE’s parallel optical modules also are used in switched bus architectures that are needed for next-generation Super Computers and large servers.

 
 
·  

Storage Area Networks - Our optical components also are used in the high-end data storage market, and include high-speed, 850 nm vertical cavity surface emitting lasers (VCSELs) and PIN photodiode components, and 10 Gb/s transmit and receive optical subassemblies (TOSAs/ROSAs).  In the future, EMCORE anticipates selling our integrated pluggable X2 or XENPAK form factor modules into the emerging 10G Fibre Channel segment.  These products provide optical interfaces for switches and storage systems used in large enterprise mission-critical applications, such as inventory control or financial systems.

 
 
·  

Satellite Communications - We manufacturer high-efficiency solar cells and solar panels for global satellite communications (satcom), and expect to see increased applications for solar cells in terrestrial power products in fiscal 2005.  EMCORE also manufactures satellite communications fiber optics products, including transmitters, receivers, subsystems, and systems, that transport wideband microwave signals between satellite hub equipment and antenna dishes.

                                         
 
·  

Wireless Communications - EMCORE manufactures compound semiconductor RF materials for the wireless handset, cell phone, and base station markets.  Our products include 4-inch and 6-inch InGaP Hetero-junction Bipolar Transistor (HBT), AlGaAs pseudomorphic high electron mobility transistors (pHEMT), and E-mode transistor wafers that are used for power amplifiers and switches within next-generation wireless networks.  We also produce GaN high electron mobility transistors (HEMT) RF materials that are designed to meet future wireless base station infrastructure requirements for higher power and frequency, along with high temperature operation at industry-leading efficiencies.

 
The following illustration shows how EMCORE's products are deployed throughout the world's communications infrastructure, and how they interconnect with each other.  The lower left side shows CATV and FTTP networks, the lower right side shows telecommunications and data networks, and the upper portion shows satcom and wireless networks.
 
Picture -- Emcore Product Suite -- emcoreproductsuite    
 
GELcore (HB-LED) Joint Venture
 
     EMCORE also is involved in a joint venture with General Electric Lighting to address the solid-state lighting market with High Brightness Light Emitting Diode-based (HB-LED) lighting systems.  Through its 49% ownership in GELcore, LLC (GELcore), EMCORE participates in the development and commercialization of next-generation LED technology for use in the general and specialty illumination markets.  GELcore's products include traffic lights, channel letters, and other signage and display products that incorporate HB-LEDs.  In the near term, GELcore expects to deploy its HB-LED products in the commercial and industrial markets, including medical, aerospace, commerical refrigeration, transportation, appliance, and general and specialty illumination applications.  EMCORE’s partner in the joint venture is General Electric Lighting, which owns the remaining 51% of GELcore.
 
 
Acquisitions and Divestiture
 
     In addition to using our internal capability to develop and manufacture products for target markets, EMCORE continues to expand its portfolio of communications products and technologies through acquisitions:

 
·  

In October 2003, EMCORE acquired Molex Inc.’s 10G Ethernet transceiver business (Molex) for an initial $1.0 million in cash, $1.5 million in cash earnout based upon initial LX4 unit shipments, and future cash earnout payments.  This transaction included assets, products, and significant intellectual property in LX4 technology, as well as several Molex product designers.  EMCORE's newly-formed design center in Downers Grove, IL designs and manufactures serial 10 Gb/s and coarse-wavelength division-multiplexing (CWDM) optical transceivers for the growing 10G Ethernet market.  Management believes that the acquisition of Molex's 10G Ethernet transceiver business has provided us with a significant competitive advantage and the most complete 10G Ethernet transceiver product portfolio in the industry.


 
·  

In June 2004, EMCORE acquired Corona Optical Systems, Inc. (Corona) for $1.2 million in a cash-for-stock merger.  Corona is a market leader in parallel optics with its ultra-small form factor OptoCubeTM transceiver, which is currently being deployed by Tier 1 customers for use in telecommunications switching and carrier-class routing applications.  This acquisition further strengthens EMCORE’s position as a leader in parallel optics technology.  The unique OptoCube transceiver’s ultra-small form factor design and manufacturing platform are well-suited for high-performance, low-cost, and high-volume manufacturing.  The OptoCube transceiver can be used as part of high-density optical backplanes in a variety of defense, super-computing, and consumer applications.

 
     As discussed in last year’s Annual Report, EMCORE sold its TurboDisc capital equipment business in November 2003 to a subsidiary of Veeco Instruments Inc. (Veeco) in a transaction that is valued at up to $80.0 million.  The selling price was $60.0 million in cash at closing, with an additional aggregate maximum payout of $20.0 million over the next two years.  EMCORE will receive in cash or stock 50% of all revenues from the TurboDisc capital equipment business that exceed $40.0 million in each of the next two years, beginning January 1, 2004.  EMCORE management expects to receive between $15.0 and $17.0 million during the second quarter of fiscal 2005 as part of the additional payout.
 
     Futhermore, as part of EMCORE’s business strategy, we are committed to the ongoing evaluation of strategic opportunities and, where appropriate, to the acquisition of additional products, technologies, or businesses that are complementary to, or broaden the markets for, our products.
 
 
Compound Semiconductor Industry Overview
 
     Advances in information technologies have created a growing need for efficient and high-performance electronic systems that operate at very high frequencies, provide higher transmission rates with increased storage capacities, 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.  But the latest generation of high-performance electronic and optoelectronic applications require certain functionalities that are generally not achievable using silicon-based components.  Advantages of compound semiconductor devices over traditional silicon devices include:
 
 
·   Higher operating speeds to address 10 Gb/s and beyond applications;
 
 
·   Lower power consumption to meet the demand for higher bandwidth density;
 
 
·   Reduced noise and distortion for maximum signal-to-noise performance;
 
 
·   Higher temperature performance for both commercial and military applications;
 
 
·   Light emitting and detecting optoelectronic properties to power the optical interconnection market;
 
 
·   Higher detection efficiency to maximize power conversion in satellite applications; and
 
 
·   Higher light emission efficiency for converting electrical power in general and specialty illumination devices.
 
     Compound semiconductor devices also can be combined into integrated circuits, such as transmitters, receivers and alphanumeric displays. Electronic manufacturers are increasingly integrating compound semiconductor devices into their products in order to achieve higher performance in applications targeted for a wide variety of communications markets. Examples of such applications enabled by compound semiconductor devices include:

 
·   High speed Internet built upon optical devices that transport data cost-effectively over local and long distances;
 
 
·   Video-on-demand over broadband cable modems using high-efficiency lasers and low-noise receivers;
 
 
·   Storage Area Networks for the high-speed transfer of data between computer systems and storage elements;
 
 
·  

Satellite communications that utilize high-efficiency solar cells to power satellites and fiber optics components and subsystems to connect antennas to ground stations;

 
 
·   LED traffic lights, signage, displays, automotive, and general illumination devices built upon high-brightness LEDs;
 
 
·   Cellular telephones and wireless networks that utilize power-efficient RF devices;
 
 
·   DVD players built upon short wavelength optical devices to maximize storage density; and
 
 
·   Laser mice incorporating VCSELs for desktop computing.
 
     The systems that enable these applications consist of many components 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 expanding communications 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 products within each layer in order to stay cost competitive and improve operating margins.  EMCORE focuses its products in the materials, components, and subsystems layers.
 
Consumer
 
Applications: Internet, CATV, Telephony, FTTP, Satcom, Wi-Fi networks, Storage Area Networks
 
Systems: modems, cell phones, routers/switches, servers, computers, satellites, lighting
 
Subsystems: subassemblies, modules, transmitters/receivers, solar panels
 
Components: VCSELs, DFB lasers, PIN detectors, RF devices, solar cells, LEDs
 
Compound Semiconductor Materials: Gallium Arsenide, Indium Gallium Phosphide, Gallium Nitride
 
 
 
EMCORE’s Strategy
 
     Our objective is to maximize shareholder value by capitalizing upon our leading-edge compound semiconductor materials and device expertise to provide cost-effective components and subsystems for the broadband, fiber optic, satellite, and wireless communications markets.  The key elements of EMCORE’s strategy include:

 
I.   Leverage EMCORE’s Leading-Edge Compound Semiconductor and Manufacturing Expertise Across Multiple Product Applications.
 
     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 our 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, EMCORE can stay ahead of the competition in both performance and cost effectiveness.
 
     EMCORE continually leverages its proprietary core technologies to develop compound semiconductor products for multiple applications in a variety of markets.  Our internally designed and manufactured VCSELs, digital DFB lasers, and PIN and APD photodiodes are the optical components used in our TOSA and ROSA products, as well as in our data and telecommunications transmitters, receivers, transceivers, and transponders.  Similarly, our internally designed and manufactured analog and digital DFB and FP lasers and PIN photodiodes are the optical components used in our CATV and FTTP devices.
 
 
II.   Target Potential High Growth Market Opportunities. 
 
     We 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 enhanced performance characteristics.  For example, we are currently focused on high growth areas in communications infrastructure by providing complete solutions for widely-accepted transmission platforms, such as 10G Ethernet, Synchronous Optical Network (SONET), Infiniband, and Fibre Channel.
 
     With increased demand for high bandwidth services, such as Internet, enterprise data processing and storage, video-on-demand, on-line gaming, and high-definition television (HDTV), more and more systems are relying on optics to transmit the signals.  EMCORE is well positioned to leverage its compound semiconductor expertise in the area of VCSELs, DFB lasers, PIN/APD detectors into value-added subsystems to meet this market demand.
 
 
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 that we serve.  We develop these relationships through long-term, high-volume supply agreements, joint ventures, acquisitions, investments, and other arrangements.  Significant transactions include:
 
     Strategic Commercial Relationships - In June 2004, EMCORE announced that it had been selected by ANADIGICS, Inc., a leading supplier of wireless and broadband solutions, to be their primary supplier for all RF materials.  EMCORE's six-inch GaAs RF transistor wafers will be used to produce power amplifiers and related devices for deployment in widespread wireless applications, such as cellular telephones, laptop computers, and wireless infrastructure networks;
 
     Technology Development - EMCORE works closely with our customers to develop next-generation technology, based on our technical and manufacturing capabilities, to help our customers achieve their product roadmap objectives.  In fiscal 2004, EMCORE achieved design wins with Cisco Systems, Inc. (10G XENPAK), Alcatel (FTTP video receiver), Scientific-Atlanta, Inc. (CATV HFC transmitter), and Aurora Networks (CATV HFC transmitter);
 
     Joint Venture - 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 revenue growth rate of 23%, with calendar 2003 revenue totaling $53.7 million.  EMCORE expects that GELcore’s calendar 2004 revenue will approximate $70.0 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;

     Acquisitions - 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 subsystems technologies:
 
 
·   Alvesta’s low-cost pluggable optical and electrical module technology leverages EMCORE’s VCSEL and PIN expertise;
 
 
·   Ortel’s high-performance broadcast and QAM transmitters and subscriber-end receivers leverages EMCORE’s DFB laser, APD detector, and analog and digital RF expertise;
 
 
·   Molex’s industry leading CWDM optical modules leverage EMCORE’s multi-wavelength DFB laser and PIN detector expertise; and
 
 
·   Corona’s ultra-small form factor transceivers leverage EMCORE’s position in the parallel optics market.

     Investment - In October 2004, EMCORE invested $1.0 million in K2 Optronics, Inc., a California-based company that specializes in the design and manufacture of external cavity lasers, to strengthen our partnership in designing next-generation, high-performance, long-wavelength components on an exclusive basis for the CATV and FTTP markets.
 
 
IV.   Continually Invest in Research and Development to Maintain Technology Leadership.
 
     Through substantial investment in research and development (R&D), EMCORE seeks to expand its leadership position in compound semiconductor-based communications products and subsystems.  We work with our customers to enhance the performance of our processes, materials science, and fiber optic module design expertise, including the development of new low-cost, high-volume wafers, components, and subsystems for our customers. To remain a leader in our markets, EMCORE not only addresses our customers’ current needs, but we respond to their evolving requirements to remain designed into their product lifecycles.  In addition, EMCORE’s development efforts are focused on continually lowering the production costs of its products.  For example, in December 2003, we introduced the SmartLink™ optical Infiniband link, a low cost, 10 Gb/s media converter solution that uses fiber optics to extend the current copper socket throughout the data center or central office (CO).  The SmartLink component replaces bulky, distance-limited Infiniband copper cable with a low cost, plug-and-play optical connection that provides improved performance, lighter weight, and extended reach (up to 300 meters), with low cross talk.
 
 
V.   Target Positive Cash Flows From Operations.
 
     Management is committed to achieving profitability by reducing EMCORE’s cost structure and lowering the breakeven points of every product line, with the goal of achieving cash flow breakeven from operations during fiscal 2005.  In the past year, management has implemented a number of initiatives to help achieve this goal: (i) outsourced high volume product manufacturing to contract manufacturers overseas; (ii) consolidated various corporate functions; (iii) reduced outside contractors and temporary workers; (iv) implemented programs to improve manufacturing process yields; (v) focused R&D efforts on projects that are expected to generate returns within one year without, we believe, jeopardizing future revenue opportunities; and (vi) workforce reductions.  Additional product manufacturing will be outsourced during fiscal 2005, and further consolidation of facilities is under review.  Offsetting some of the savings, however, are costs to implement the Sarbanes-Oxley Act of 2002 and related increases in auditing fees.
 
 
EMCORE’s Products
 
     The following chart summarizes (i) our products, (ii) the markets to which those products are directed, (iii) representative applications in which our products are used, and (iv) certain benefits and characteristics of compound semiconductor devices:

Products
Market
Representative Applications
Benefits/Characteristics
         
§ Analog & digital lasers (DFB, FP)
§ Photodetectors and subassembly
components
§ Broadcast analog & digital fiber-optic
transmitters
§ QAM transmitters
CATV
§ Cable Television (CATV)
§ Hybrid Fiber Coax (HFC) networks
§ Digital overlay on HFC
§ Increased capacity to offer more
cable services
§ Increase data transmission speeds
§ Increased bandwidth
§ Lower power consumption
§ Low noise video receive
§ Increased transmission distance
 
     
§ Analog & digital lasers (DFB, FP)
§ Photodetectors and subassembly
components
§ PIN and APD photodiodes and
subassemblies
§ Passive optical network (PON)
transceivers
§ Analog & digital video receivers
§ Multi-Dwelling Unit video receivers
FTTP
 
§ Passive optical network (PON) in
Fiber-to-the-Premise (FTTP)
networks
§ High performance for both digital
and analog characteristics
§ Integrated infrastructure to support
competitive costs
§ Support for multiple standards
   
§ High-speed lasers (VCSEL, DFB,
FP) and subassembly components
§ High-speed photodetector (PIN,
APD) and subassembly components
§ RF devices and materials
§ 10G Ethernet modules in XENPAK
& X2
§ Parallel optical modules
Data Communications
(LAN, SAN, Infiniband)
§ High-speed fiber optic networks and
optical links (including Infiniband,
Ethernet, Fibre Channel networks)
§ Copper replacement in the data
center/CO
§ Supercomputing
§ High performance computing (HPC)
systems
§ Storage Area Networks (SAN)
§ Network Attached Storage (NAS)
§ Increased network capacity
§ Increase data transmission speeds
§ Increased bandwidth
§ Lower power consumption
§ Improved cable management over
copper interconnects
§ Increased transmission distance
§ Lowest cost optical interconnections
for massively parallel
multi-processors
   
§ Solar cells and panels
§ RF materials
§ Fiber-optic transmitters and receivers
Satellite Communications
§ Power modules for satellites
§ Satellite-to-ground communications
§ Antenna to ground station
communications
§ High radiation tolerance
§ High light-to-power conversion
efficiency for reduced size and
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-LED lighting systems
 
Solid-State Lighting
§ Flat panel displays
§ Solid-state lighting
§ Outdoor signage and displays
§ Traffic signals
§ Lower power consumption
§ Lower temperature operation
§ Longer life
   
  
 
    The following charts depict some of our products:
 
Picture -- Emcore Digital Products Jpg -- emcoredigital

Picture -- Emcore Ortel Products Jpg -- emcoreortel
 
Picture -- Emcore Chips & Die Products Jpg -- emcorechipsdie
 
 Picture -- Emcore Photovoltaics Products Jpg -- emcoreepv
 
Picture -- Emcore Emd Products Jpg -- emcoreemd
 
 
EMCORE’s Product Lines

Fiber Optics
 
     Over the past several years, communications 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 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 older copper wire technologies.
 
     EMCORE's fiber optics group manufactures high-speed optical transmitter, receiver, and transceiver modules that utilize our leading-edge laser and photodiode components for the data communications and telecommunications markets.  EMCORE's modules are designed to help solve data bottleneck problems for short and intermediate distance applications in central office, enterprise, and point-of-presence (POP) environments.  Growing segments, such as 10G Ethernet, Infiniband, Fibre Channel, and SONET, benefit from these cost-effective products.  As summarized in the table below, EMCORE has positioned itself as a component and subsystem manufacturer that services a significant portion of the digital and analog communications market:
 
Picture -- Emcore Fiber Optics Infrastructure -- emcorefiberopticsinf121404
 
  
    Short Wavelength (850 nm) VCSELs
 
     EMCORE designs, develops, and manufactures high-speed VCSELs and PIN photodiode components and subassemblies for the data communications (including local and storage area networks) and telecommunications markets.  We offer a broad product line of VCSEL and PIN photodiode solutions, including bare die, packaged components, and optical subassemblies for integration into 1G-10G Ethernet, Fibre Channel, Infiniband, CWDM, SONET, and other high-speed telecom applications.
 
     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 with the superior electro-optical performance of traditional edge-emitting lasers.  In addition, the cylindrical laser beam profile allows an easy and efficient coupling of light into a multi-mode fiber.  This enhanced manufacturability for both wafer processing and packaging enables a cost-effective, high-bandwidth fiber optic communications solution.
 
     VCSELs have many advantages, including ultra-high modulation rates for advanced information signaling, extremely low power consumption, high fiber optic coupling efficiencies, circular output beams, and photolithography-defined geometries.  We capitalize on our oxide-confined VCSEL manufacturing platform and expertise to provide the industry with 1 Gb/s, 2 Gb/s, 2.5 Gb/s, 4 Gb/s, 10 Gb/s (OC-192), and 40 Gb/s (OC-768) solutions through single-channel serial, multi-channel parallel, or CWDM approaches.  Our customers combine this VCSEL technology with custom integrated circuits (IC) and module level designs for the final transceiver package, which usually consists of a VCSEL, photodiode, laser driver circuit, receiver circuit, and various other electronic components that are all connected via a printed circuit board.  This circuit board is then mounted into a mechanical housing with an electrical connection to the user's system and an optical connection to fiber cabling.  Leading electronic systems manufacturers are integrating VCSELs into a broad array of end-market applications, including Internet backbone, telephony, and computing.  Specific network elements include Ethernet switches, digital cross-connects, grooming switches, clustered servers with Infiniband interfaces, supercomputers, and carrier class routers.
 
     Long Wavelength (1310 nm and 1550 nm) DFB and FP Lasers
 
     EMCORE’s Ortel division designs, develops, and manufactures high-speed, long-wavelength edge emitters, which are based on DFB or FP technologies and enhanced with predistortion technology invented by Ortel for highest fidelity applications.  These devices are packaged into subsystems and used to transmit CATV or FTTP signals from the service provider to the subscriber, and back.  The primary 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 within the optical fiber.  This results in increased distances between repeaters or amplifiers, which reduces deployment costs for the service providers.
 
     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 or single-mode fiber.  EMCORE has developed 850 nm, 1310 nm, and 1550 nm photodetectors to cover most speed and distance applications.  In addition, 1x4 and 1x12 arrays of 850 nm photodetectors can be incorporated into our parallel optical modules.  The addition of photodetector products completes our line of optical devices, and provides an internal supply for all of our optical subsystems.
 
     Optical Subsystems (Transmitters, Receivers, Transceivers, and Transponders)
 
     EMCORE's optical subsystem products are built using our internally produced optical devices, which allows us to provide highly cost-effective subsystems in our key markets.  By creating additional value at the subsusyem level, and leveraging our compound semiconductor expertise and growing know-how in subsystem design and manufacturing, we can further improve margins and increase our overall revenue.  Our subsystem products are becoming quite intelligent, with functions that re-time and clean up the signals passing through them.  Many of these subsystems have been widely adopted in Ethernet, SONET, Infiniband, and Fibre Channel equipment.  Most widely available is the XENPAK form factor (for more information see www.xenpak.org).  In 2004, EMCORE added customers, expanded production, and began high volume commercial shipments of two key value-added subsystems in the XENPAK form factor (the LX4 and CX4) to vendors shipping 10G Ethernet systems.  EMCORE's family of subsystem products includes:
 
 
·  

Broadcast transmitters and QAM overlay systems for CATV and FTTP applications based on 1550 nm laser technology;

 
 
·   Subscriber-end video receivers for CATV and FTTP applications based on 1310 nm and 1550 nm PIN detectors and video receive technology;
 
 
·   XENPAK and X2 transceivers using optical LX4 (CWDM) and copper CX4 technology for the 10G Ethernet market;
 
 
·  

4- and 12-channel parallel optical transceiver modules for HPCs, supercomputers, and high-end servers, data communications switches, and telecommunications switch applications based on 850 nm VCSEL and PIN array technology; and

 
 
  ·   10 Gb/s transmit and receive optical subassemblies for Storage Area Networks.
 
Photovoltaics
 
EMCORE serves the global satellite communications market by providing advanced solar cell products and solar panels.  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 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 transponder or transmitter aboard a spacecraft).
 
EMCORE designs and manufactures multi-junction compound semiconductor solar cells for military and commercial satellite applications.  Our Albuquerque, New Mexico facility is a state-of-the-art, highly automated factory that includes a computer-aided manufacturing system to monitor production processes, generate electronic run cards, and provide real-time production and yield metrics.  We currently manufacture one of the most efficient and reliable commercially available, radiation resistant advanced triple-junction solar cells in the world, with an average "beginning of life" efficiency of 27.5%.  A satellite’s broadcast success and corresponding revenue depend on its power efficiency and its capacity to transmit data.
 
EMCORE also provides covered interconnect solar cells (CICs) and solar panel lay-down services, giving us the capacity to manufacture complete solar panels.  We can provide satellite manufacturers with proven integrated satellite power solutions that considerably improve satellite economics.  Satellite manufacturers and solar array integrators rely on EMCORE to meet their satellite power needs with proven flight heritage.  Through well-established partnerships with major satellite manufacturers and a proven qualification process, we play a vital role in the evolution of satellite communications around the world.
 
We also recently have begun an active R&D effort in terrestrial solar cell applications.  EMCORE is conducting a National Renewable Energy Laboratory-funded effort to adapt our space-qualified advanced triple-junction solar cell technology for the terrestrial photovoltaic market.  Because of its higher device cost when compared to silicon-based terrestrial solar cells, we also are developing solar concentrator systems to lower the cost per watt generated by our compound semiconductor-based terrestrial solar cells.  Major terrestrial solar power manufacturers have expressed interest in incorporating EMCORE’s photovoltaics technology into their commercial products.
 
Through its Ortel division, EMCORE also manufactures and sells a line of fiber optic satellite communications transmitters, subsystems, and systems to transport wideband microwave signals between satellite base stations and antenna dishes.
 
Electronic Materials and Devices
 
RF materials are compound semiconductor materials used in wireless communications.  These materials have a broader bandwidth and superior performance at higher frequencies compared to silicon-based materials. EMCORE currently produces 4-inch and 6-inch InGaP HBT and AlGaAs pHEMT materials and E-mode transistor wafers that are used for power amplifiers and switches in GSM, CDMA multiband wireless handsets, cell phones, and in wireless LAN applications.  InGaP HBT materials provide higher linearity, higher power-added efficiency, as well as greater reliability than first generation AlGaAs HBT technologies.  In addition, our recently-developed enhanced mode pHEMT technologies have demonstrated in production their continued competitiveness for handset applications.  EMCORE also makes GaN HEMT RF materials that are designed to meet future wireless base station infrastructure requirements for higher power and frequency, along with temperature operation at industry leading efficiencies.  We believe that our 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 GaAs-based MOCVD production systems, two GaN production systems, and two GaN development systems dedicated to electronic materials manufacturing.  EMCORE also equipped its wafer fabrication area with state-of-the-art cassette-to-cassette characterization equipment.  As mentioned above, in June 2004, EMCORE announced that it had been selected by ANADIGICS to be their primary supplier for all RF materials.  Our six-inch GaAs RF transistor wafers will be used to produce power amplifiers and related devices that are used in widespread wireless applications, such as cellular telephones, laptop computers, and wireless infrastructure networks.
 
We also manufacture magneto-resistive (MR) sensors that are compound semiconductor devices used in position sensing applications.  MR sensors improve vehicle performance through the 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.
 
GELcore (HB-LED) Joint Venture
 
HB-LEDs are solid-state compound semiconductor devices that emit light.  They are used in miniature packages in everyday applications, including commercial displays, transportation, general and specialty illumination, computers, and other consumer electronics.  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 applications, including wireless handsets, cell phones, computer monitors, and automotive dashboard lighting.  In addition, they are used in consumer products, office equipment, full color displays, message advertising, informational signs, landscape lighting, and traffic signals.  While growing its business in commercial applications, GELcore is focused on the general illumination market as its ultimate goal.
 
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 incandescent lamps they replace.  Moreover, LED signals last several times longer, allowing for additional savings through reduced maintenance costs.  HB-LEDs also have 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.)