EMCORE Corporation (NASDAQ: EMKR)

Transcription

1 March 27, 2008 Technology Semiconductors Company Update Rating: BUY Price: $5.95 Price Target: $20.00 Bloomberg: NASDAQ: EMKR Market Data 52-Week Range: $15.90-$4.32 Total Entprs. Value (MM): $306.7 Market Cap. (MM): $315.3 Insider Ownership: 35.8% Institutional Ownership: 68.1% Shares Out. (MM): 51.1 Float (MM): 51.1 Avg. Daily Vol.: 698,474 Financial Summary Book Value (MM): $152.2 Book Value/Share: $2.87 Net Debt (MM): ($8.6) Long-Term Debt (MM): $95.9 USD 2006A 2007A 2008E 2009E Rev. (MM) EV/Rev. 1.9x 1.8x 1.1x 0.7x EPS Dec (0.10) (0.13) (0.13) 0.13 Mar (0.07) (0.18) (0.05) 0.15 Jun (0.08) (0.08) Sep (0.18) (0.13) FY Sep (0.44) (0.52) (0.11) 0.64 FY P/E NM NM NM 9.3x Consensus (0.10) 0.41 John Lau, P.E. (212) , EMCORE Corporation (NASDAQ: EMKR) CPV Industry Summit in Spain Signals Accelerating Adoption Investment Summary While EMKR's Solar CPV business continues to gain traction, its Fiber Optic unit is also strong, coupled with its recent acquisition of Intel's FO unit. With improving fundamentals and accelerating Solar orders, we feel EMKR is undervalued in the FO & Clean Tech sectors. Maintain Buy and PT of $20. Event We will attend the first commercial Concentrated Photovoltaic (CPV)Industry Summit held in Madrid, Spain on April 1-2 Key Points First Concentrated Photovoltaic Industry Summit to take place in Madrid on April 1-2: We will attend the CPV summit organized by CPV Today in Madrid on April 1-2. More than 120 executives from the industry will be attending this 2-day event. We believe the Madrid event would be the first such commercial summit exclusively devoted to the CPV industry and is indicative of the industry hitting the knee in the adoption curve. Many companies start to implement CPV Technology - In our report today, we highlight many companies that are developing and installing CPV systems along with how they were funded. These companies will attend the CPV Summit next week to talk about their installations and showcase their products. CPV technology's value proposition is attractive over the long-term: According to CPV Today, the CPV industry aggregate output increased from 1MW in 2004 to 18MW in We believe the technology enjoys installation cost advantage over silicon with per MW cost. EMKR has already achieved photoelectric conversion efficiency of 39% (one of the highest in the world) and further improvements in efficiency will continue to lower costs. Operational improvements will likely make CPV even more cost-effective: Unlike conventional flat panels which use sunlight in its available direct form, CPV technology concentrate sunlight 500x or even higher and uses much less semiconductor content. Research is being done in this area in order to optimize yield and reduce costs. Valuations remain compelling - We would maintain our Buy rating and $20 PT on EMKR. We remain comfortable with the fundamentals for EMKR and their solid business prospects going forward. Refer to our valuation analysis in our report. For the current quarter, we are modeling revenue and EPS estimates of $55.2MM/($0.05). We are maintaining our FY2008 sales estimates at $266.8MM. For FY09, we forecast sales and pro forma EPS of $469MM/$0.64. Valuation/Risks Our $20 price target is based on a sum of the parts methodology and NTM P/S multiple of 2.5x vs. a historical range of 1.1x-4.0x. We are valuing EMKR's solar business at 4x vs. the historical range for the solar sector of 3x-7x. Risks include, but are not limited to, the ability to win terrestrial solar contracts and competition in fiber optics market.

2 Company Description EMCORE manufactures a broad portfolio of compound semiconductor-based components and subsystems such as Fiber Optic Modules, Solar Cells, and RF Wafers. These products are used in Cable Television (CATV), Fiber-to-the-Premise (FTTP), Telecommunications Infrastructure, Data Storage Networks, Satellite, and Wireless Communications markets. John Lau, P.E., jlau@jefferies.com, (212) Page 2 of 10

3 First commercial Concentrated Photovoltaic (CPV) Summit to take place in Madrid, Spain on April 1-2: More than 120 executives from the CPV industry will be attending the 2-day summit. We believe the Madrid event would be the first such summit exclusively devoted to commercialize the CPV industry and is indicative of the industry hitting knee in the adoption curve. Participating companies include Emcore, Green & Gold Energy, AzureSpace, Isofoton and SolFocus among many others. CPV technology's value proposition is attractive over the long-term: CPV technology is still at its infancy but will continue to gain significant traction. According to CPV Today, the CPV industry aggregate output increased from 1MW in 2004 to 18MW in We believe the CPV technology will have cost advantage over silicon based solutions. EMKR has already achieved photoelectric conversion efficiency of 39% and is on track to take to be in the low 40% in the next few years. The progressively improving efficiency levels of GaAs-based CPV solutions should continue to reduce area requirements and lower costs also. Operational improvements will likely make CPV even more cost-effective: Unlike conventional flat panels which use sunlight in its direct available form, CPV technology uses concentrated sunlight by 500x or even higher. Research is being done in this area in order to optimize yield and reduce costs. At the summit, we expect to hear from companies working on these improvements. The following are examples of some of the CPV solution companies presenting at the Madrid summit. We believe such companies are either customers already or potential EMKR customers as GaAs based CPV technology gains traction in the terrestrial applications. ISFOC, Spain: ISFOC or Institute for Concentration Photovoltaic Systems is currently installing 1.7MW CPV plant in Spain, the worlds largest. ISFOC receives funding for the Spanish government. In 2008, another CPV plant with 1.3MW of installed capacity will be built. EMKR is one of the companies that won competitive tender on this project. Solar Systems: Solar Systems is a private company based in Melbourne, Australia that builds and operates solar concentrator photovoltaic power stations. According to the company, they recently completed construction of three concentrator dish power stations in Northern Australia. The $7MM project is currently producing electricity to complement the existing diesel generators under a long term contract with Power and Water Corporation, an electricity supplier. The project consists of 30 dishes and will supply approximately 30%-50% of the community s daytime power requirements. The company noted that this project enabled them to acquire valuable field experience that resulted in a significant reduction in system costs and significant improvements in cell efficiency. Figure 1: Solar Power Plant built by Solar Systems in Australia (NASDAQ:EMKR) Source: Solar Systems The company is also undertaking a similar project in Coober Pedy in South Australia. Solar Systems announced on February 19, 2008 that it would build a $7.1MM power plant with 26 solar dishes. The dishes are to be purchased by EnGen, the owner of the existing Coober Pedy diesel power station. The Australian Government announced that it would provide $3.55MM of funding toward the project under the Renewable Remote Power Generation Program (RRPGP). The South Australian Government also announced that it would provide $635K John Lau, P.E., jlau@jefferies.com, (212) Page 3 of 10

4 toward the project. Electricity generated from these dishes will help offset the use of diesel in the town and will be connected to the Coober Pedy electricity grid. Finally, Solar Systems was granted planning approval to construct a large scale solar demonstration in Bridgewater Australia. This $10MM dollar test facility will start construction this year and according to the company it will be complete in This is the first step toward Solar Systems CPV technology getting utilized for large scale power generation into the Australian national electric grid. This is to be part of a $420MM, 154MW large scale solar concentrator power station in the North-West of Victoria. The Federal and State governments of Australia have announced grants toward the Victoria project to the tune of $125MM. The Federal Government s Low Emission Technology Demonstration Fund (LETDF) will contribute $75MM. Another $50MM in funding will be provided by a grant from the Victorian Government. TRUenergy (China Light & Power Group) has purchased 20% stake in Solar Systems for $40MM and has signed a development agreement for $290MM to finance the balance of the Victoria project. Solar Systems is backed by a group of private investors in addition to TRU energy. The company has received over $50MM in funding so far, according to its website. SolFocus: SolFocus designs and implements solar power solutions using CPV technology. The company has partnered with Xerox s Palo Alto Research Center (PARC) and, according to the company press release, PARC contributes core patents and long term technology for royalties and equity in the privately held company. The company also reported that it was awarded a 500kw contract for the ISFOC project launched in Spain and they were also the first company to install a power producing system in that project during January of The 3MW project in Castilla La Mancha is a worldwide initiative sponsored by Spain s national ministry of Education and funded by the Spanish government. Figure 2: SolFocus CPV installation at ISFOC of Spain Source: SolFocus, Inc In another commercial deal struck in February this year, KGO radio in San Francisco announced that it would use the SolFocus system to power its radio transmissions. The project is estimated to generate 12Kw of power upon completion in 1H2008. Solfocus has successfully raised over $95MM in funding from VC firms since its inception in November Investors include New Enterprise Associates, Moser Baer Photovoltaic, Ltd., David Gelbaum Group, NGEN Partners and Yellowstone Capital Inc. John Lau, P.E., jlau@jefferies.com, (212) Page 4 of 10

5 Sol3G: Founded in Terressa, Spain in 2004, Sol3G is emerging as a significant player in the Solar energy space. They recently added a new plant in Barcelona with production capacity up to 5Mw. By the end or 2008, the company should have production capacity up to 10Mw total. Figure 3: Sol3G Manufacturing Facility in Spain Source: Sol3G Sol3G has many successful installations under its belt with solar projects completed in Denmark, Girona, Lleida, Barcelona, Sevilla, and Madrid. Most recently, the company completed an 8kWp pilot installation for Enel in Sicily. This is the first of the two deliveries that will be necessary to complete the Italian Energy Company s project. Sol3G has also been awarded a 400Kw contract for the ISFOC 3Mw project in Castilla La Mancha Spain. In 2008, Sol3G plans to product and sell 5Mw of concentrated photovoltaic products. Figure 4: Illustration of Sol3G s CPV System Source: Sol3G John Lau, P.E., jlau@jefferies.com, (212) Page 5 of 10

6 Emcore Sum of the Parts Analysis suggests trough valuation at current prices: Figure 5: Emcore Sum of the Parts Valuation EMKR: Sum of the part valuation Business Units Sales CY09E EPS CY09E CY09E P/Sales Valuation Segment $'000 $ $'000 Share Price Fiber Optics 204, , Sattelite PV 67, , CPV 216, , , ,423, Total equity value 1,423,822.0 Shares outstanding (000) 71,000.0 CY09 Current P/E CY09 Current P/S Source: Jefferies & Co estimates Current Price $5.95 We have used our CY09 sales estimates for sum of the parts valuation of Emcore as we believe by then the company would have reached a steady state of growth. We are assigning 4.5x P/S to the terrestrial CPV business as we believe EMKR CPV business will outgrow the rest of the PV industry due to the accelerating adoption of CPV. Overall EMKR PV business has P/S multiple of 4.0x v the solar industry average of 3.9x. We have assigned 1.5x P/S to the fiber optic segment v 1.4x for the industry. These assumptions lead to a blended P/S2 of 2.7x and our $20 PT. At the current market price of $5.95, EMKR is trading at P/S2 of just 0.9x, which we believe is trough valuation for this growth stock. Figure 6: Emcore Comp Table (Figures in $MM except EPS) Rating Ticker Price Price Rev. Growth EPS. Growth % P/S EV/Sales Fiber Optics Target FY07-08 FY08-09 FY07-08 FY08-09 FY07A FY08E FY09E FY07A FY08E FY09E JDS Uniphase NC JDSU NC $ % 11.2% 103.4% 35.6% 2.3x 2.0x 1.8x 1.9x 1.7x 1.5x Optium Buy OPTM $12 $ % 26.9% -35.7% 96.3% 1.5x 1.2x 0.9x 1.1x 0.8x 0.7x Opnext Buy OPXT $7 $ % 15.8% 218.2% 8.6% 1.7x 1.4x 1.2x 0.9x 0.7x 0.6x Finisar Hold FNSR $1.75 $ % 12.9% 100.0% 116.7% 1.0x 1.0x 0.8x 1.3x 1.3x 1.2x Oplink NC OPLK NC $ % 12.3% -12.0% 78.1% 2.3x 1.3x 1.2x 1.3x 0.7x 0.6x IPG Technologies Buy IPGP $22 $ % 23.0% 23.1% 32.5% 3.7x 3.0x 2.4x 3.7x 2.9x 2.4x Average 28.5% 17.0% 66.2% 61.3% 2.1x 1.6x 1.4x 1.7x 1.4x 1.2x Solar SunPower * Buy SPWR $110 $ % 48.4% 65.1% 58.7% 7.7x 4.7x 3.2x 7.9x 4.8x 3.2x Evergreen Solar* Hold ESLR $8 $ % 220.1% 14.3% x 9.2x 2.9x 12.5x 7.7x 2.4x Energy Conversion Devices* Buy ENER $35 $ % 77.5% -72.7% - 9.5x 4.4x 2.5x 8.3x 3.9x 2.2x First Solar NC FSLR NC $ % 80.8% 77.1% 104.0% 34.3x 18.2x 10.1x 33.2x 17.7x 9.8x Suntech Power * Buy STP $63 $ % 46.0% 53.8% 60.6% 4.4x 2.9x 2.0x 4.5x 3.1x 2.1x Average 64.3% 80.8% 26.2% 60.8% 12.6x 7.3x 4.1x 11.6x 6.7x 3.7x Average of Multiples 9.2x 5.5x 3.2x 8.4x 5.0x 2.9x Emcore Buy EMKR $20 $ % 70.0% x 1.4x 0.8x 2.1x 1.3x 0.8x Source: Thomson Baseline & Jefferies & Company *Stocks covered by Jefferies Clean Tech Analyst Paul Clegg John Lau, P.E., jlau@jefferies.com, (212) Page 6 of 10

7 Emcore (EMKR) Income Statements FYE: Sep (Pro Forma) Figures in $ '000 except EPS F06A Dec 06A Mar 07A Jun 07A Sep 07A F07A Dec 07A Mar 08E Jun 08E Sep 08E F08E Dec 08E Mar 09E Jun 09E Sep 09E F09E Dec 09E Total Revenue 158,373 38,487 39,660 44,540 47, ,000 46,887 55,200 71,500 93, , , , , , , ,000 % Change Y/Y 24.1% -1.1% -3.6% 6.2% 32.9% 7.3% 21.8% 39.2% 60.5% 98.3% 57.0% -33.8% 112.0% 67.8% 28.2% 75.8% 16.4% % Change Q/Q 8.8% 3.0% 12.3% 5.6% -0.3% 17.7% 29.5% 30.4% 20.6% 4.0% 2.6% -0.4% 9.6% Cost of goods sold 129,577 30,018 31,331 34,774 37, ,137 36,132 42,504 54,841 70, ,347 83,813 86,112 87,240 84, ,129 92,748 % Change Y/Y 21.4% -8.2% -3.5% 4.3% 19.2% 2.7% 20.4% 35.7% 57.7% 91.5% 53.5% 132.0% 102.6% 59.1% 19.9% 67.4% 10.7% % Change Q/Q -3.3% 4.4% 11.0% 6.4% -2.4% 17.6% 29.0% 29.2% 18.3% 2.7% 1.3% -2.6% 9.2% Gross Margins 18.2% 22.0% 21.0% 21.9% 21.3% 21.6% 22.9% 23.0% 23.3% 24.0% 23.4% 25.5% 26.4% 27.3% 28.9% 27.1% 29.2% SG&A 35,528 8,409 11,412 7,546 10,089 37,456 9,552 9,550 10,225 11,190 40,516 11,250 11,466 11,640 11,592 45,948 12,445 % of Revenue 22.4% 21.8% 28.8% 16.9% 21.5% 22.0% 20.4% 17.3% 14.3% 12.0% 15.2% 10.0% 9.8% 9.7% 9.7% 9.8% 9.5% R&D 18,325 6,611 7,453 5,469 5,459 24,992 7,248 7,452 7,651 8,486 30,836 10,125 10,530 10,800 10,755 42,210 11,790 % of Revenue 11.6% 17.2% 18.8% 12.3% 11.6% 14.7% 15.5% 13.5% 10.7% 9.1% 11.6% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% Total Op Exp 16,800 17,002 17,875 19,676 21,375 21,996 22,440 22,347 24,235 GAAP Adjustments - (6,034) (3,542) (10,182) (9,802) Operating Income* (25,057) (12,585) (14,078) (13,431) (15,349) (25,585) (6,045) (4,306) (1,216) 2,704 (8,862) 7,313 8,892 10,320 12,189 38,714 14,017 % of Revenue -15.8% -32.7% -35.5% -30.2% -32.6% -15.1% -12.9% -7.8% -1.7% 2.9% -3.3% 6.5% 7.6% 8.6% 10.2% 8.3% 10.7% Interest Income/(Expense) (92) (531) (632) (865) (778) (100) (778) Other Gain(Loss) (209) - (73) Pretax Income* (24,056) (12,195) (14,354) (14,511) (16,190) (57,250) (6,896) (4,406) (1,166) 2,754 (9,713) 7,373 8,952 10,380 12,249 38,954 14,087 % of Revenue -15.2% -31.7% -36.2% -32.6% -34.4% -33.7% -14.7% -8.0% -1.6% 3.0% -3.6% 6.6% 7.7% 8.7% 10.3% 8.3% 10.8% Income Taxes Effective Tax Rate 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Net Income* (22,205) (12,195) (14,354) (14,511) (16,190) (57,250) (6,896) (4,406) (1,166) 2,754 (9,713) 7,373 8,952 10,380 12,249 38,954 14,087 % of Revenue -14.0% -31.7% -36.2% -32.6% -34.4% -33.7% -14.7% -8.0% -1.6% 3.0% -3.6% 6.6% 7.7% 8.7% 10.3% 8.3% 10.8% Shares Outstanding - Basic 49,482 50,869 50,945 51,043 51,081 50,985 52,232 60,000 63,000 63,200 59,608 63,400 63,600 63,800 64,000 63,700 64,200 Shares Outstanding - Diluted 50,002 50,869 50,945 51,043 51,081 50,985 52,232 60,000 70,000 70,200 63,108 70,400 70,600 70,800 71,000 70,700 71,200 DILUTED EPS (GAAP) ($0.52) ($0.24) ($0.28) ($0.28) ($0.32) ($1.12) ($0.27) ($0.07) ($0.02) $0.04 ($0.32) $0.10 $0.13 $0.15 $0.17 $0.55 $0.20 % Change Y/Y 2.0% % % % -70.5% % -14.2% 73.9% 94.1% 112.4% 71.1% 138.3% 272.7% 980.5% 339.7% 269.7% 88.9% % Change Q/Q -28.9% -17.5% -0.9% -11.5% 13.6% 73.2% 77.3% 335.6% 166.9% 21.1% 15.6% 17.7% 14.7% DILUTED EPS PRO FORMA ($0.36) ($0.13) ($0.18) ($0.08) ($0.13) ($0.52) ($0.13) ($0.05) $0.01 $0.06 ($0.11) $0.13 $0.15 $0.17 $0.20 $0.64 $0.22 % Change Y/Y 6.1% % % % -75.8% % 44.9% 73.9% 94.1% 112.4% 86.3% 179.3% 272.7% 980.5% 339.7% 458.0% 88.9% % Change Q/Q -33.0% -17.5% -0.9% -11.5% 58.3% 44.4% 77.3% 335.6% 166.9% 21.1% 15.6% 17.7% 14.7% John Lau (212) Source : Jefferies Company Estimates John Lau, P.E., jlau@jefferies.com, (212) Page 7 of 10

8 ANALYST CERTIFICATIONS I, John Lau, P.E., certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. Important Disclosures As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this report receive compensation based in part on the overall performance of the firm, including investment banking income. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Aside from certain industry reports published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgement. In February 2008, Jefferies acted as Lead Placement Agent in a private placement of common stock and warrants for Emcore Corp. Concluding in October 2006, Jefferies acted as co-manager in the initial public offering of common stock for Optium Corp. In February 2007 Jefferies acted as co-manager in the initial public offering of common stock for Opnext, Inc. In December 2006, Jefferies acted as co-manager in the initial public offering of common stock for IPG Photonics. A member of David Paek's family owns shares of Energy Conversion Devices common stock. Within the past twelve months, Jefferies and/or its affiliates received non-investment banking, securities related compensation for client services it provided to EMCORE Corporation. Jefferies makes a market in EMCORE Corporation. For Important Disclosure information on companies recommended in this report, please visit our website at or call (NASDAQ:EMKR) Meanings of Jefferies & Company, Inc, Ratings Buy - Describes stocks that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period. Hold - Describes stocks that we expect to provide a total return (price appreciation plus yield) of plus or minus 15% within a 12-month period. Underperform - Describes stocks that we expect to provide a total negative return (price appreciation plus yield) of 15% or more within a 12-month period. Our focus on mid-capitalization and growth companies implies that many of the companies we cover are typically more volatile than the overall stock market, which can be amplified for companies with an average stock price consistently below $10. For companies in this category only, the expected total return (price appreciation plus yield) for Buy rated stocks is 20% or more within a 12-month period. For Hold rated stocks with an average stock price consistently below $10, the expected total return (price appreciation plus yield) is plus or minus 20% within a 12-month period. For Underperform rated stocks with an average stock price consistently below $10, the expected total return (price appreciation plus yield) is minus 20% within a 12-month period. NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable regulations and/or Jefferies & Company, Inc. policies. CS - Coverage Suspended. Jefferies & Company, Inc. has suspended coverage of this company. NC - Not covered. Jefferies & Company, Inc. does not cover this company. Restricted - Describes issuers where, in conjunction with Jefferies engagement in certain transactions, company policy or applicable securities regulations prohibit certain types of communications, including investment recommendations. Monitor - Describes stocks whose company fundamentals and financials are being monitored, and for which no financial projections or opinions on the investment merits of the company are provided. John Lau, P.E., jlau@jefferies.com, (212) Page 8 of 10

9 Valuation Methodology Jefferies' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and expected total return over the next 12 months. The price targets are based on several methodologies, which may include, but are not restricted to, analyses of market risk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash flow (CF), free cash flow (FCF), EV/EBITDA, P/E, PE/growth, P/CF, P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/average group P/E, sum of the parts, net asset value, dividend returns, and return on equity (ROE) over the next 12 months. Risk which may impede the achievement of our Price Target This report was prepared for general circulation and does not provide investment recommendations specific to individual investors. As such, the financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Past performance of the financial instruments recommended in this report should not be taken as an indication or guarantee of future results. The price, value of, and income from, any of the financial instruments mentioned in this report can rise as well as fall and may be affected by changes in economic, financial and political factors. If a financial instrument is denominated in a currency other than the investor's home currency, a change in exchange rates may adversely affect the price of, value of, or income derived from the financial instrument described in this report. In addition, investors in securities such as ADRs, whose values are affected by the currency of the underlying security, effectively assume currency risk. Rating and Price Target History for: EMCORE Corporation (EMKR) as of /18/05 B:$6.5 08/03/05 B:$7 11/18/05 B:$9 02/03/06 B:$12 05/05/06 B:$16 01/08/07 B:$10 09/17/07 B:$11 10/15/07 B:$13 12/14/07 B:$18 02/27/08 B:$ Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q Created by BlueMatrix Distribution of Ratings IB Serv./Past 12 Mos. Rating Count Percent Count Percent BUY [BUY/ SB] HOLD [HOLD] SELL [SU/ UNPF] OTHER DISCLOSURES This material has been prepared by Jefferies & Company, Inc. a U.S.-registered broker-dealer, employing appropriate expertise, and in the belief that it is fair and not misleading. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified, therefore, we do not guarantee its accuracy. Additional and supporting information is available upon request. This is not an offer or solicitation of an offer to buy or sell any security or investment. Any opinion or estimates constitute our best judgment as of this date, and are subject to change without notice. Jefferies & Company, Inc. and Jefferies International Limited and their John Lau, P.E., jlau@jefferies.com, (212) Page 9 of 10

10 affiliates and their respective directors, officers and employees may buy or sell securities mentioned herein as agent or principal for their own account. Additional information for UK and Canadian investors This material is approved for distribution in the United Kingdom by Jefferies International Limited which is authorized and regulated by the Financial Services Authority ("FSA"). While we believe this information and materials upon which this information was based are accurate, except for any obligations under the rules of the FSA, we do not guarantee its accuracy. This material is intended for use only by persons who have professional experience in matters relating to investments falling within Articles 19(5) and 49(2)(a) to (d) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) or to persons to whom it can be otherwise lawfully distributed. For Canadian investors, this material is intended for use only by professional or institutional investors. None of the investments or investment services mentioned or described herein are available to other persons or to anyone in Canada who is not a "Designated Institution" as defined by the Securities Act (Ontario). This material does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this report is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of the investments referred to herein and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. Jefferies & Company, Inc. research reports are disseminated and available primarily electronically, and, in some cases, in printed form. Electronic research is simultaneously available to all clients. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Jefferies & Company, Inc. Jefferies International Limited has adopted a conflicts management policy in connection with the preparation and publication of research, the details of which are available upon request in writing to: The Compliance Officer, Jefferies International Limited, Vintners Place, 68 Upper Thames Street, London EC4V 3BJ; telephone +44 (0) ; facsimile +44 (0) Jefferies & Company, Inc, (NASDAQ:EMKR) John Lau, P.E., jlau@jefferies.com, (212) Page 10 of 10