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Rubicon Technology Posts First Quarter 2014 Results of Operations

May 6, 2014

Rubicon Technology, Inc., a provider of sapphire substrates and products to the LED, semiconductor, and optical industries, reported financial results for its first quarter ended March 31.

In a release on May 1, the Company noted that it reported first quarter revenue of $14.3 million as compared with $11.5 million in the prior quarter. The general lighting segment of the LED market continued to strengthen in the first quarter as adoption of this disruptive technology continues to gain momentum. Overall LED growth in the quarter was tempered by seasonality associated with the backlighting market. Demand from this market is typically lower at the beginning of the year. As a result, overall demand in the first quarter was similar to the prior quarter and sapphire pricing, therefore, remained fairly consistent with the previous quarter.

The Company reported progress in growing the wafer side of its business. They received their first production order for their recently introduced patterned sapphire substrates which will be delivered in the second quarter. They also received their first production order of four-inch polished wafers which started in the latter part of the first quarter.

Raja Parvez, President and CEO of Rubicon, commented, "Patterned sapphire substrates ("PSS") and polished wafers are an important part of our strategy and I am pleased with the sales progress we made in the quarter."

However, costs in the wafering operations were high in the quarter resulting in an increase in pre-tax loss from $9.1 million in the fourth quarter to $10.9 million in the first quarter. Wafer costs were higher than normal due to the large number of PSS samples produced and the cost of establishing a four-inch polishing line. In addition, due to the increased number of wafers in inventory at the end of the period and wafer costs exceeding market price, there was a $1.1 million adjustment to align wafer inventory to market value.

William Weissman, Rubicon's CFO, commented, "Idle plant and development costs at our wafering facility are the main cause of our negative margins. However, utilization will be improving with the recent sales activity and we expect wafer costs to come down over the course of this year as we move from development to production."

The Company's net loss in the first quarter was $0.43 per share. The Company established a tax valuation allowance in the fourth quarter and consequently does not currently record a tax benefit on its Statements of Operations.

Second Quarter 2014 Guidance

Commenting on the outlook for the second quarter of 2014, Parvez said, "We expect the LED market to continue to strengthen in the second quarter resulting in some pricing improvement, particularly for four-inch material."

Parvez continued, "Core sales volumes in the second quarter will decline somewhat as we have exhausted our excess boule inventory. We also believe we will see meaningfully higher wafer revenue in the second quarter which will improve utilization but, in the near- term, will not improve margins. With reduced core revenue offsetting increased wafer revenue, we expect total revenue in the second quarter to be similar to the first quarter. We expect our loss per share in the second quarter to be between $0.38 and $0.46, based on a share count of 26.1 million shares."

Parvez said, "We are building momentum in the wafer business and with increasing volume and experience, and as customer specifications are defined, we will reduce our idle plant costs and our wafer product cost. The higher wafer sales mix will allow us to generate significant growth without adding crystal growth capacity and improve margins as our utilization and efficiency increase."

Rubicon Technology, Inc. is a vertically integrated electronic materials provider specializing in monocrystalline sapphire for applications in light-emitting diodes (LEDs), optical systems and specialty electronic devices.

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