EMCORE (EMKR) Q2 2012 Earnings Call May 3, 2012 4:30 PM ET
Operator
Good day, ladies and gentlemen, and welcome to the EMCORE Second Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.
I would like to turn the conference over to your host, Mr. Vic Allgeier. You may begin.
Victor Allgeier
Thank you, and good afternoon, everyone. Before we begin, we would like to remind you that the information provided herein may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. These forward-looking statements are largely based on our current expectations and projections about future events and financial trends affecting the financial condition of our business. Such forward-looking statements include, in particular, projections about our future results, statements about our plans, strategies, business prospects, changes in trends in our business and the markets in which we operate.
Management cautions that these forward-looking statements relate to future events or our financial performance, and are subject to business, economic and other risks and uncertainties, both known and unknown, that may cause actual results to be materially different from those expressed or implied by any forward-looking statements, including, without limitation, the impact on the company, our customers, our suppliers from the effects of the floods in Thailand and consummating the asset sale transaction with Sumitomo, including the likelihood of obtaining regulatory and other necessary approvals to consummate the transaction.
Neither management nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We caution you not to rely on these statements without also considering the risks and uncertainties associated with these statements and our business that are addressed in our filings with the U.S. Securities and Exchange Commission that are available on the SEC's website, located at www.sec.gov, including the sections entitled Risk Factors in our annual report on Form 10-K and our quarterly report on Form 10-Q.
We assume no obligation to update any forward-looking statements to conform such statements to actual results or to changes in our expectations, except as required by applicable law or regulation.
With us today from EMCORE are Dr. Hong Hou, President and Chief Executive Officer; and Mark Weinswig, Chief Financial Officer. Mark will review the financial results, and Hong will discuss business highlights before we open the call up to questions.
I'll now turn the call over to Mark.
Mark B. Weinswig
Thank you, Vic, and good afternoon, everyone. Today, I'm going to focus my discussion on our second fiscal quarter operating results and our balance sheet. Please note that the effect of the reverse stock split is reflected in our share and per share amounts.
Consolidated revenue for our second fiscal quarter totaled $37.8 million, which is an increase of $0.3 million or 1% over the previous quarter. The increase was primarily due to higher Fiber Optics revenue, partially offset by a reduction in our Solar business. Our Q2 revenue guidance was $38 million to $40 million.
On a segment basis, our Photovoltaics business accounted for $15.8 million or 42% of the company's total revenue. This represents a $3.3 million or 17% decrease from the prior quarter. As we've said previously, while we believe in the long-term growth prospects of this business, our revenue in any given quarter may be a bit lumpy as illustrated in our last couple of quarter results.
The Fiber Optics segment accounted for $21.9 million or 58% of the company's total revenue. This represents an increase of roughly $3.6 million or 20% from the prior quarter, with the increase primarily from our initial recovery efforts after the flood in Thailand. Hong will discuss the prospects of the Fiber Optics business later in the call.
Consolidated gross margin was 14%, a 5 percentage point increase from the prior quarter, primarily attributable to the recovery in our Fiber Optics segment.
On a segment basis, Photovoltaics gross margin decreased 1.8 percentage points to 20.9%, as we were unfavorably impacted by the lower revenue base. We believe that this segment can reach gross margin targets of 30%.
Fiber Optics gross margin was 9.4%, a 14 percentage point increase from the prior quarter, primarily due to higher revenue and lower excess and obsolete charges. In the first quarter, the company recognized expenses of approximately $2.4 million, primarily from additional excess and obsolete charges and losses on outstanding purchase commitments relating to the Thailand flood. We expect our gross margins in our Fiber Optics segment to continue to improve in future quarters. After we complete the rebuild of the manufacturing lines damaged by the flood, we will begin to lay out the operating targets for the Fiber segment.
Operating expenses were $14.2 million, excluding the flood-related charges. It's important to note that at the end of January, we removed the compensation-related reductions that were previously implemented. We believe that our operating expenses will increase in future quarters as we focus our R&D resources from the manufacturing rebuild to new product development and product support. We recorded a flood loss of $0.1 million in the quarter related to our Fiber Optics segment.
For our Solar CPV joint venture, Suncore, we recognized an operating loss of $0.2 million for the quarter. Hong will discuss the Suncore strategy and opportunity in more detail.
On a GAAP basis, consolidated net loss for the quarter was $9.3 million, $5 million better than the prior quarter. We believe our results will continue to improve in future quarters as we rebuild our Fiber Optics manufacturing lines and increase our revenues in our Solar segment. Our GAAP net loss per share was $0.40.
Our non-GAAP adjusted operating loss after excluding certain adjustments, all of which are set forth in the non-GAAP tables included in today's release, was a loss of $3.4 million versus a $5.1 million loss in the prior quarter. Please note that we have included additional information regarding depreciation, amortization, stock comp and other items in today's release to provide further clarity on our results.
Now on to order backlog, which we define as purchase orders or supply agreements accepted by the company with expected product delivery and/or services to be performed within the next 12 months. At the end of the quarter, the company had a Solar order backlog of approximately $55.7 million, an increase from $51.7 million in the prior quarter. The increase was driven by our Satellite Solar business.
Shipments in our Fiber Optics business are still gated by our manufacturing capacity. We have more order backlog than we can fulfill. Therefore, we are not using backlog as a measure of the strength of our Fiber Optics business at this time.
Moving on to the balance sheet. At the end of the -- as of the end of March 31, the company's cash and cash equivalents was $25.3 million. Our net cash decreased significantly from the prior quarter, primarily due to increased inventory levels to meet the ramp up in production, equipment purchases associated with our Fiber Optics production line rebuild and operating losses.
On March 27, we announced the intent to sell the VCSEL-based product lines to Sumitomo for $17 million subject to certain adjustments. The results of these products are included in our results for the March quarter. The revenues in the March quarter associated with these products was $4.3 million. We believe that the sale of these product lines will improve the company's immediate bottom line results. We expect to have the transaction closed within the next week.
Regarding the insurance recovery for the flood damage, EMCORE received $5 million to its own carrier in the December quarter. We are working with our contract manufacturer and their insurance carriers relating to the consigned inventory and equipment that was damaged. While the amount and timing of those receipts are uncertain, we are working to maximize our recoveries. Any future receipts of proceeds will be accounted for as a gain.
Over the past few months, we've made significant strides of recovering from the Thailand crisis. We look forward to showing the results of these actions over the next few quarters.
With that, I will turn the call over to Hong who will discuss the recovery from this flood in Thailand, the company's strategic and operating initiatives and provide revenue guidance for the third quarter.
Hong Q. Hou
Thanks, Mark. Good afternoon, everyone. As Mark discussed, we achieved consolidated revenues of $37.8 million in the March quarter, slightly below our guided range. This represents a slight sequential increase due to 20% increase in Fiber Optics revenue, partially offset by a decrease in Solar revenue due to push-outs of a major Solar sale order from an international customer.
The consolidated sales margin increased to 14.2% from 9.3% in the prior quarter due to improved operational efficiency and the recovery from the Thailand flooding. Gross margins improved sequentially in the Fiber Optics segment and decreased slightly in the Solar segment.
Now let me discuss our current market dynamics and our position in each of the major business areas. First, I will start with the Solar Photovoltaics business segment. As we have discussed previously, the revenue in our Space Photovoltaics business can be somewhat lumpy due to the timing of program completions and product deliveries of major orders.
In Q2, we experienced a sequential decline of approximately $3.3 million revenue in our Solar business segment, primarily related to a significant shipment for more than $4 million in revenue we were expecting to make to an international customer in the March quarter. Unfortunately, due to the delay with their customer's demand, our customer notified us that they needed to delay delivery of our solar cells. It is important, however, to note that we still expect to ship this order in the latter part of 2012 and recognize that resulting revenue at that time.
In spite of the temporary decline in revenue of the Space Solar division, the fundamentals of the business remain very robust, and outlook for our Space programs and revenue is very promising. We recently announced a $6 million contract from Ball Aerospace, which represents an expansion of our customer base in the aerospace industry. With this award, EMCORE continues to cement its position as a primary supplier of space solar cells and solar panels to all major aerospace companies who purchase solar products externally. In addition, we were selected to supply solar panels to 2 separate NASA missions recently, and we're expecting several other space solar panel contracts to be awarded to EMCORE in the next quarter.
Lastly, there are several multimillion dollar, multiyear contracts that we expect to be awarded this year, and I look forward to discussing these with you in the near future. With all of these, we continue to be very excited about our competitive position and expansion of our Space Photovoltaics business.
Due to the increased demand from space programs and terrestrial CPV solar cells from both Suncore and other customers, we project a significant increase in demand of the wafer volumes going through our solar cell fab over the next several months. We have been adding capacity, and some of that operational expenses have been completed and ready for the ramp up.
Regarding complete solar panels, our program backlog and pipeline are filling up the capacity of our manufacturing lines as well. These programs will allow us to better utilize our solar panel production capacity and provide additional positive leverage on our margins. Furthermore, we will be adding new test capabilities, including thermal cycling for solar panels, so that we can reduce the total cycle time and reduce the cost of our products.
Now let me give you an update on the recent developments regarding our CPV joint venture and our terrestrial CPV business. Our CPV joint venture in China, Suncore Photovoltaics, has established its high-volume manufacturing capacity in its new facility in Huainan City, which had a targeted capacity of 200 megawatts of CPV modules per annum. Suncore commenced the production in February for the 50-megawatt CPV system order. Thanks to the establishment of its manufacturing infrastructure and engineering team, Suncore is pursuing very aggressive cost reduction points while also producing products to meet these large purchase orders.
Regarding deployment of CPV in the U.S., well, it had been challenging to secure project financing in the current economic environment. EMCORE has closed a project financing for a 2-megawatt distributed generation solar project in Albuquerque. Construction will start in early June, and the project is expected to be completed by the end of this calendar year.
Regarding our improved CPV design for our commercial rooftop applications, we have entered into the qualification and certification phase, and expect the general availability by the end of September for the newly designed low-cost rooftop CPV product. With the advancement of solar cell technology and an improved convergent efficiency, we have improved the cost structure of our product significantly. We still firmly believe that CPV will be a market player for certain applications as its adoption continues.
Now let me discuss our market position and business outlook in our Fiber Optics business segment. The Fiber Optics revenue increased approximately 20% to $21.9 million from $18.3 million in the December quarter. And the gross margin improved significantly from negative 4.8% to 9.4% this quarter, as we've started in recovering from the flood-impacted manufacturing infrastructure.
In line with our expectations, the manufacturing capacities for cable TV, laser modules and transmitters were fully established as of the end of March, and the products from the new manufacturing line are being qualified by customers. The primary manufacturing location is our facility in China, and we continue to use our plant in the U.S. while we're ramping up the capacity. And our [indiscernible] in China, we are ramping up the capacity and increasing the throughput every day and expecting to reach full production capacity this quarter, as originally scheduled.
At the same time, we are focusing on the recovery plan. We continue to introduce new products and to secure customer wins. Most noticeable in the quarter were the win for our QAM product with a major CATV equipment manufacturer.
In the March quarter, we continue to experience a very strong demand for our RFoG and FTTx PON transceiver products. The market drivers for these products are to provide an innovative last mile fiber optic solution in the traditional hybrid fiber terrestrial network and the government broadband initiatives.
The review for ITLA launch of narrow-linewidth lasers for coherent 40- and 100-gigabit transmission application at our compact manufacturing facility is going very well. The line was up and running in early March, about 3 weeks ahead of the original schedule. The products produced by the new line helped pass a key Telcordia qualification requirement. Customers are completing their qualification and starting to take shipments. We continue to build backlogs and expect this business to start ramping back up in this quarter. During the September quarter, we should be running to the pre-flood levels.
Our customer base continues to view our ITLA as the laser of choice due to its performance as our products offers an extremely narrow-linewidth enabling the 40- and 100-gigabit per second coherent applications. This is evidenced by some major system integrators requiring their suppliers to use EMCORE's ITLAs in their coherent transponder and LAN card products.
We're continuing to improve our technology advantage through a new product introduction. The newly-designed micro-ITLA, which provides superior performances with enhanced functionality in a much smaller form factor, is now being sampled with some key customers. The early feedback from customers have been extremely positive. We will be going into Telcordia qualification this quarter and planning general availability in 2012.
Regarding the Tunable XFP line, the reboot of our capacity is going as planned. We expect the production capacity to be fully established as our contract manufacturers facility by the end of June, with volume shipments starting in the September quarter. We have qualified 3 additional telecom customers with this product, bringing the total number of design wins to 13.
In the current quarter, we experienced component shortages arising primarily from Thailand flooding. As a result, our shipments in the March quarter were flat compared to the December quarter. We have since resolved the component shortage problem and expect significant business growth after we establish manufacturing capacity next quarter as customer demand is very healthy.
Regarding our other product lines, including video transport, RF and macro web links for satellite communications, specialty photonic systems for homeland security applications, the business looks quite healthy. Revenues from this product line were not impacted by the flood, and we have seen strong increases in bookings for some of these product lines.
The business in our enterprise product lines, which include our VCSEL components, parallel optic modules and active optical cables, did well. So revenue contribution from this product lines in the March quarter were approximately $4.3 million.
As announced on March 27, we entered into a definitive agreement to sell the VCSEL-based component and module business to Sumitomo Electric Device Innovations USA. The consideration for this sale will be $17 million in cash, subject to certain closing adjustments. The assets to be sold including fixed assets, inventory and the intellectual property for the VCSEL-based product line including the total optical transceivers and active cables, as well as the VCSEL fab located in Albuquerque. EMCORE will retain all the rest of the Fiber Optics product portfolio, which includes our Indium Phosphide-based lasers, photodiodes and modulators, telecom and cable TV fiber optics products, fiber-to-the-home transceivers, video transports and Specialty Photonics products.
The decision to sell the VCSEL-based product line is strategic and market-driven. This divestiture will greatly simplify our operating structure, reduce fixed cost and improve market focus. This sale is also expected to reduce the time to reach profitability. Our core competency is in compound semiconductor-based products and performance capabilities remain the cornerstone of our Fiber Optics business. Our retained products and technology portfolio is strongly aligned to support current and future requirements in tunable, coherent high-speed transmission systems and next-generation broadband architectures. The proceeds from the transaction bolsters our balance sheet, improve our ability to invest in telecom, broadband and Specialty Photonics products to remain industry leaders in this respective product line in our Fiber Optics business segment.
We are getting an approval from the Committee on Foreign Investment in the United States or CFIUS, and we plan to close this transaction next week. Sumitomo plans to continue the VCSEL fab operations in Albuquerque and rent building space from EMCORE. This helps us to reduce our fixed cost. Concurrently, Sumitomo has entered into several ancillary agreements with EMCORE, including a transition service agreement to ensure a smooth business transition.
Over the past quarter, we purchased needed equipment for rebuilding the production lines and replenish the inventory pipeline. As a result, we consumed significant cash in the March quarter. We expect the cash flow from operations will be trending much more favorably going forward. We are still working with our contract manufacturers and their insurance carriers on the insurance claims related to the equipment and inventory damaged by the flood. Significant proceeds are expected, although the timing and amounts are still unclear.
Turning to guidance for the third quarter of the fiscal year 2012 ending June, we expect to have revenues in the range of $38 million to $41 million. If we had included the contribution of VCSEL-based revenues which are being sold to Sumitomo for the entire quarter, our revenue would be in the range of $42 million to $45 million.
The primary contribution to the sequential revenue increase is the further recovery of Fiber Optics production capacity and the higher shipment from our Solar business.
Just in summary, we have completed the product strategic realignment in our Fiber Optics segment post-flooding. The remaining business represents the latest technology in the fastest growing area. We are recovering from the flood impact as evidenced by the 20% sequential revenue increase in the March quarter and a 10% to 20% additional recovery guided for this quarter.
Booking is strong and the recovery is on track. In our Fiber -- in our Solar business, the market outlook is very promising, and we are poised for a strong growth in the latter part of this year. As our operation model becomes simpler, we plan to provide more guidance on revenue and margins from next quarter on.
With that, I will turn the call over to Q&A.
Operator
Good day, ladies and gentlemen, and welcome to the EMCORE Second Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.
I would like to turn the conference over to your host, Mr. Vic Allgeier. You may begin.
Victor Allgeier
Thank you, and good afternoon, everyone. Before we begin, we would like to remind you that the information provided herein may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. These forward-looking statements are largely based on our current expectations and projections about future events and financial trends affecting the financial condition of our business. Such forward-looking statements include, in particular, projections about our future results, statements about our plans, strategies, business prospects, changes in trends in our business and the markets in which we operate.
Management cautions that these forward-looking statements relate to future events or our financial performance, and are subject to business, economic and other risks and uncertainties, both known and unknown, that may cause actual results to be materially different from those expressed or implied by any forward-looking statements, including, without limitation, the impact on the company, our customers, our suppliers from the effects of the floods in Thailand and consummating the asset sale transaction with Sumitomo, including the likelihood of obtaining regulatory and other necessary approvals to consummate the transaction.
Neither management nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We caution you not to rely on these statements without also considering the risks and uncertainties associated with these statements and our business that are addressed in our filings with the U.S. Securities and Exchange Commission that are available on the SEC's website, located at www.sec.gov, including the sections entitled Risk Factors in our annual report on Form 10-K and our quarterly report on Form 10-Q.
We assume no obligation to update any forward-looking statements to conform such statements to actual results or to changes in our expectations, except as required by applicable law or regulation.
With us today from EMCORE are Dr. Hong Hou, President and Chief Executive Officer; and Mark Weinswig, Chief Financial Officer. Mark will review the financial results, and Hong will discuss business highlights before we open the call up to questions.
I'll now turn the call over to Mark.
Mark B. Weinswig
Thank you, Vic, and good afternoon, everyone. Today, I'm going to focus my discussion on our second fiscal quarter operating results and our balance sheet. Please note that the effect of the reverse stock split is reflected in our share and per share amounts.
Consolidated revenue for our second fiscal quarter totaled $37.8 million, which is an increase of $0.3 million or 1% over the previous quarter. The increase was primarily due to higher Fiber Optics revenue, partially offset by a reduction in our Solar business. Our Q2 revenue guidance was $38 million to $40 million.
On a segment basis, our Photovoltaics business accounted for $15.8 million or 42% of the company's total revenue. This represents a $3.3 million or 17% decrease from the prior quarter. As we've said previously, while we believe in the long-term growth prospects of this business, our revenue in any given quarter may be a bit lumpy as illustrated in our last couple of quarter results.
The Fiber Optics segment accounted for $21.9 million or 58% of the company's total revenue. This represents an increase of roughly $3.6 million or 20% from the prior quarter, with the increase primarily from our initial recovery efforts after the flood in Thailand. Hong will discuss the prospects of the Fiber Optics business later in the call.
Consolidated gross margin was 14%, a 5 percentage point increase from the prior quarter, primarily attributable to the recovery in our Fiber Optics segment.
On a segment basis, Photovoltaics gross margin decreased 1.8 percentage points to 20.9%, as we were unfavorably impacted by the lower revenue base. We believe that this segment can reach gross margin targets of 30%.
Fiber Optics gross margin was 9.4%, a 14 percentage point increase from the prior quarter, primarily due to higher revenue and lower excess and obsolete charges. In the first quarter, the company recognized expenses of approximately $2.4 million, primarily from additional excess and obsolete charges and losses on outstanding purchase commitments relating to the Thailand flood. We expect our gross margins in our Fiber Optics segment to continue to improve in future quarters. After we complete the rebuild of the manufacturing lines damaged by the flood, we will begin to lay out the operating targets for the Fiber segment.
Operating expenses were $14.2 million, excluding the flood-related charges. It's important to note that at the end of January, we removed the compensation-related reductions that were previously implemented. We believe that our operating expenses will increase in future quarters as we focus our R&D resources from the manufacturing rebuild to new product development and product support. We recorded a flood loss of $0.1 million in the quarter related to our Fiber Optics segment.
For our Solar CPV joint venture, Suncore, we recognized an operating loss of $0.2 million for the quarter. Hong will discuss the Suncore strategy and opportunity in more detail.
On a GAAP basis, consolidated net loss for the quarter was $9.3 million, $5 million better than the prior quarter. We believe our results will continue to improve in future quarters as we rebuild our Fiber Optics manufacturing lines and increase our revenues in our Solar segment. Our GAAP net loss per share was $0.40.
Our non-GAAP adjusted operating loss after excluding certain adjustments, all of which are set forth in the non-GAAP tables included in today's release, was a loss of $3.4 million versus a $5.1 million loss in the prior quarter. Please note that we have included additional information regarding depreciation, amortization, stock comp and other items in today's release to provide further clarity on our results.
Now on to order backlog, which we define as purchase orders or supply agreements accepted by the company with expected product delivery and/or services to be performed within the next 12 months. At the end of the quarter, the company had a Solar order backlog of approximately $55.7 million, an increase from $51.7 million in the prior quarter. The increase was driven by our Satellite Solar business.
Shipments in our Fiber Optics business are still gated by our manufacturing capacity. We have more order backlog than we can fulfill. Therefore, we are not using backlog as a measure of the strength of our Fiber Optics business at this time.
Moving on to the balance sheet. At the end of the -- as of the end of March 31, the company's cash and cash equivalents was $25.3 million. Our net cash decreased significantly from the prior quarter, primarily due to increased inventory levels to meet the ramp up in production, equipment purchases associated with our Fiber Optics production line rebuild and operating losses.
On March 27, we announced the intent to sell the VCSEL-based product lines to Sumitomo for $17 million subject to certain adjustments. The results of these products are included in our results for the March quarter. The revenues in the March quarter associated with these products was $4.3 million. We believe that the sale of these product lines will improve the company's immediate bottom line results. We expect to have the transaction closed within the next week.
Regarding the insurance recovery for the flood damage, EMCORE received $5 million to its own carrier in the December quarter. We are working with our contract manufacturer and their insurance carriers relating to the consigned inventory and equipment that was damaged. While the amount and timing of those receipts are uncertain, we are working to maximize our recoveries. Any future receipts of proceeds will be accounted for as a gain.
Over the past few months, we've made significant strides of recovering from the Thailand crisis. We look forward to showing the results of these actions over the next few quarters.
With that, I will turn the call over to Hong who will discuss the recovery from this flood in Thailand, the company's strategic and operating initiatives and provide revenue guidance for the third quarter.
Hong Q. Hou
Thanks, Mark. Good afternoon, everyone. As Mark discussed, we achieved consolidated revenues of $37.8 million in the March quarter, slightly below our guided range. This represents a slight sequential increase due to 20% increase in Fiber Optics revenue, partially offset by a decrease in Solar revenue due to push-outs of a major Solar sale order from an international customer.
The consolidated sales margin increased to 14.2% from 9.3% in the prior quarter due to improved operational efficiency and the recovery from the Thailand flooding. Gross margins improved sequentially in the Fiber Optics segment and decreased slightly in the Solar segment.
Now let me discuss our current market dynamics and our position in each of the major business areas. First, I will start with the Solar Photovoltaics business segment. As we have discussed previously, the revenue in our Space Photovoltaics business can be somewhat lumpy due to the timing of program completions and product deliveries of major orders.
In Q2, we experienced a sequential decline of approximately $3.3 million revenue in our Solar business segment, primarily related to a significant shipment for more than $4 million in revenue we were expecting to make to an international customer in the March quarter. Unfortunately, due to the delay with their customer's demand, our customer notified us that they needed to delay delivery of our solar cells. It is important, however, to note that we still expect to ship this order in the latter part of 2012 and recognize that resulting revenue at that time.
In spite of the temporary decline in revenue of the Space Solar division, the fundamentals of the business remain very robust, and outlook for our Space programs and revenue is very promising. We recently announced a $6 million contract from Ball Aerospace, which represents an expansion of our customer base in the aerospace industry. With this award, EMCORE continues to cement its position as a primary supplier of space solar cells and solar panels to all major aerospace companies who purchase solar products externally. In addition, we were selected to supply solar panels to 2 separate NASA missions recently, and we're expecting several other space solar panel contracts to be awarded to EMCORE in the next quarter.
Lastly, there are several multimillion dollar, multiyear contracts that we expect to be awarded this year, and I look forward to discussing these with you in the near future. With all of these, we continue to be very excited about our competitive position and expansion of our Space Photovoltaics business.
Due to the increased demand from space programs and terrestrial CPV solar cells from both Suncore and other customers, we project a significant increase in demand of the wafer volumes going through our solar cell fab over the next several months. We have been adding capacity, and some of that operational expenses have been completed and ready for the ramp up.
Regarding complete solar panels, our program backlog and pipeline are filling up the capacity of our manufacturing lines as well. These programs will allow us to better utilize our solar panel production capacity and provide additional positive leverage on our margins. Furthermore, we will be adding new test capabilities, including thermal cycling for solar panels, so that we can reduce the total cycle time and reduce the cost of our products.
Now let me give you an update on the recent developments regarding our CPV joint venture and our terrestrial CPV business. Our CPV joint venture in China, Suncore Photovoltaics, has established its high-volume manufacturing capacity in its new facility in Huainan City, which had a targeted capacity of 200 megawatts of CPV modules per annum. Suncore commenced the production in February for the 50-megawatt CPV system order. Thanks to the establishment of its manufacturing infrastructure and engineering team, Suncore is pursuing very aggressive cost reduction points while also producing products to meet these large purchase orders.
Regarding deployment of CPV in the U.S., well, it had been challenging to secure project financing in the current economic environment. EMCORE has closed a project financing for a 2-megawatt distributed generation solar project in Albuquerque. Construction will start in early June, and the project is expected to be completed by the end of this calendar year.
Regarding our improved CPV design for our commercial rooftop applications, we have entered into the qualification and certification phase, and expect the general availability by the end of September for the newly designed low-cost rooftop CPV product. With the advancement of solar cell technology and an improved convergent efficiency, we have improved the cost structure of our product significantly. We still firmly believe that CPV will be a market player for certain applications as its adoption continues.
Now let me discuss our market position and business outlook in our Fiber Optics business segment. The Fiber Optics revenue increased approximately 20% to $21.9 million from $18.3 million in the December quarter. And the gross margin improved significantly from negative 4.8% to 9.4% this quarter, as we've started in recovering from the flood-impacted manufacturing infrastructure.
In line with our expectations, the manufacturing capacities for cable TV, laser modules and transmitters were fully established as of the end of March, and the products from the new manufacturing line are being qualified by customers. The primary manufacturing location is our facility in China, and we continue to use our plant in the U.S. while we're ramping up the capacity. And our [indiscernible] in China, we are ramping up the capacity and increasing the throughput every day and expecting to reach full production capacity this quarter, as originally scheduled.
At the same time, we are focusing on the recovery plan. We continue to introduce new products and to secure customer wins. Most noticeable in the quarter were the win for our QAM product with a major CATV equipment manufacturer.
In the March quarter, we continue to experience a very strong demand for our RFoG and FTTx PON transceiver products. The market drivers for these products are to provide an innovative last mile fiber optic solution in the traditional hybrid fiber terrestrial network and the government broadband initiatives.
The review for ITLA launch of narrow-linewidth lasers for coherent 40- and 100-gigabit transmission application at our compact manufacturing facility is going very well. The line was up and running in early March, about 3 weeks ahead of the original schedule. The products produced by the new line helped pass a key Telcordia qualification requirement. Customers are completing their qualification and starting to take shipments. We continue to build backlogs and expect this business to start ramping back up in this quarter. During the September quarter, we should be running to the pre-flood levels.
Our customer base continues to view our ITLA as the laser of choice due to its performance as our products offers an extremely narrow-linewidth enabling the 40- and 100-gigabit per second coherent applications. This is evidenced by some major system integrators requiring their suppliers to use EMCORE's ITLAs in their coherent transponder and LAN card products.
We're continuing to improve our technology advantage through a new product introduction. The newly-designed micro-ITLA, which provides superior performances with enhanced functionality in a much smaller form factor, is now being sampled with some key customers. The early feedback from customers have been extremely positive. We will be going into Telcordia qualification this quarter and planning general availability in 2012.
Regarding the Tunable XFP line, the reboot of our capacity is going as planned. We expect the production capacity to be fully established as our contract manufacturers facility by the end of June, with volume shipments starting in the September quarter. We have qualified 3 additional telecom customers with this product, bringing the total number of design wins to 13.
In the current quarter, we experienced component shortages arising primarily from Thailand flooding. As a result, our shipments in the March quarter were flat compared to the December quarter. We have since resolved the component shortage problem and expect significant business growth after we establish manufacturing capacity next quarter as customer demand is very healthy.
Regarding our other product lines, including video transport, RF and macro web links for satellite communications, specialty photonic systems for homeland security applications, the business looks quite healthy. Revenues from this product line were not impacted by the flood, and we have seen strong increases in bookings for some of these product lines.
The business in our enterprise product lines, which include our VCSEL components, parallel optic modules and active optical cables, did well. So revenue contribution from this product lines in the March quarter were approximately $4.3 million.
As announced on March 27, we entered into a definitive agreement to sell the VCSEL-based component and module business to Sumitomo Electric Device Innovations USA. The consideration for this sale will be $17 million in cash, subject to certain closing adjustments. The assets to be sold including fixed assets, inventory and the intellectual property for the VCSEL-based product line including the total optical transceivers and active cables, as well as the VCSEL fab located in Albuquerque. EMCORE will retain all the rest of the Fiber Optics product portfolio, which includes our Indium Phosphide-based lasers, photodiodes and modulators, telecom and cable TV fiber optics products, fiber-to-the-home transceivers, video transports and Specialty Photonics products.
The decision to sell the VCSEL-based product line is strategic and market-driven. This divestiture will greatly simplify our operating structure, reduce fixed cost and improve market focus. This sale is also expected to reduce the time to reach profitability. Our core competency is in compound semiconductor-based products and performance capabilities remain the cornerstone of our Fiber Optics business. Our retained products and technology portfolio is strongly aligned to support current and future requirements in tunable, coherent high-speed transmission systems and next-generation broadband architectures. The proceeds from the transaction bolsters our balance sheet, improve our ability to invest in telecom, broadband and Specialty Photonics products to remain industry leaders in this respective product line in our Fiber Optics business segment.
We are getting an approval from the Committee on Foreign Investment in the United States or CFIUS, and we plan to close this transaction next week. Sumitomo plans to continue the VCSEL fab operations in Albuquerque and rent building space from EMCORE. This helps us to reduce our fixed cost. Concurrently, Sumitomo has entered into several ancillary agreements with EMCORE, including a transition service agreement to ensure a smooth business transition.
Over the past quarter, we purchased needed equipment for rebuilding the production lines and replenish the inventory pipeline. As a result, we consumed significant cash in the March quarter. We expect the cash flow from operations will be trending much more favorably going forward. We are still working with our contract manufacturers and their insurance carriers on the insurance claims related to the equipment and inventory damaged by the flood. Significant proceeds are expected, although the timing and amounts are still unclear.
Turning to guidance for the third quarter of the fiscal year 2012 ending June, we expect to have revenues in the range of $38 million to $41 million. If we had included the contribution of VCSEL-based revenues which are being sold to Sumitomo for the entire quarter, our revenue would be in the range of $42 million to $45 million.
The primary contribution to the sequential revenue increase is the further recovery of Fiber Optics production capacity and the higher shipment from our Solar business.
Just in summary, we have completed the product strategic realignment in our Fiber Optics segment post-flooding. The remaining business represents the latest technology in the fastest growing area. We are recovering from the flood impact as evidenced by the 20% sequential revenue increase in the March quarter and a 10% to 20% additional recovery guided for this quarter.
Booking is strong and the recovery is on track. In our Fiber -- in our Solar business, the market outlook is very promising, and we are poised for a strong growth in the latter part of this year. As our operation model becomes simpler, we plan to provide more guidance on revenue and margins from next quarter on.
With that, I will turn the call over to Q&A.
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