Can Rubicon Hire Bring Shine Back To Sapphire?

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by Debra Fiakas CFA

On Friday Rubicon Technology, Inc. (RBCN:  Nasdaq) announced the appointment of a new chief operating officer to manage the company’s sapphire materials production.  Rubicon is a producer of materials used in electronics components, including the company’s specialty, monocrystalline sapphire materials.  

Rubicon chose a seasoned operator for the COO post, which now encompasses functions previously carried about by managers in two different positions.  The new hire, Hany Tamim, was previously with SunEdison (SUNE:  Nasdaq), the developer and producer of solar cells and modules.  He has experience in managing crystal growth and wafer production, two steps Rubicon needs to get right to keep costs low.   By elevating these job functions to a position in the corporate suite, Rubicon seems to be signaling a new view on the importance of operational success to the company’s future.

Rubicon needs to find its groove, so to speak.  The company has experienced a decline in fortunes over the last three and a half years due to what it calls a slump in the market for materials intended for electronics.  Rubicon’s products include sapphire core in two to six inch diameter cylinders, patterned sapphire wafers, and sapphire shapes in various sizes.  The sapphire cores are sliced for use in Light Emitting Diodes (LED) or as lens covers in mobile devices.   Patterned sapphire wafers are also used in LED applications for better efficiency in extracting light.  There are additional uses for the company’s sapphire components in electronics destined for the communications, aerospace, and other end markets.

Business for Rubicon peaked in 2011, when sales totaled $134.0 million.  That was also the last year the company reported a profit.  Since then sales have slumped, declining to $33.0 million in the twelve months ending June 2015, and resulting in a net loss of $40.0 million.  Operations only required $21.4 million in cash to keep the business going during the last twelve months.  Even though the company had $36.0 million in cash on its balance sheet at the end of June 2015, and could potentially support operations for another year, it is understandable why leadership at Rubicon would give Mr. Tamim a shoutout.  ‘Help!  We need to cut costs so we can survive until the world reawakens to the merits of sapphire materials.’

Rubicon has only tangentially benefited from the exit of GT Advanced Technologies (GTATQ:  OTC/PK) from the sapphire materials sector, following the breakdown of GT’s relationship with Apple, Inc.  (APPL:  Nasdaq).  Apple and GT have differing stories on who was at fault in the demise of Apple’s plans to use sapphire glass on its iWatch and iPhones.  The iWatch eventually debuted with sapphire glass components, but iPhone 6 has been produced with conventional glass alternatives.  GT Advanced Technologies declared bankruptcy to get away from the toxic sapphire glass production alliance it had with Apple.

No one has stepped up to take GT’s mission to bring sapphire any closer to handheld electronic devices than the optical lens components.  There is no surprise there.  In the end it seemed more a passing dream by Apple engineers and designers, who were not willing to accept the limitations of sapphire crystal growth and the high costs associated with new product development.

The benefit Rubicon may have enjoyed from GT’s exit is not in terms of new sales.   GT’s former vice president in charge of crystal growth systems development has joined Rubicon as that company’s chief technology officer.  So besides Mr. Tamim, Rubicon has a CTO who is also highly sensitive to cost issues in sapphire crystal manufacturing.

Rubicon appears to have its back to the wall with continued losses and dwindling cash resources.  We have kept the company in the Materials Group of our Mothers of Invention Index of companies that are contributing to energy efficiency because we believe sapphire materials will have a place in 21st century advanced electronics picture.  

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries. 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. Crystal Equity Research has a Hold recommendation on GTATQ. 

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