• About Rubicon Technology, Inc. ►

Rubicon’s achievements in 2011 have positioned us for further growth, demonstrated our proven technology leadership, and improved our cost structure. We are confident that our markets will provide enormous opportunity going forward and that we have positioned ourselves as the provider of choice for sapphire products in the very dynamic markets we serve.

2011 was a record year for Rubicon in both revenue and earnings. Revenue grew to $134 million, a 73% increase compared with 2010, while pretax income nearly doubled, growing from $29.0 million in 2010 to $54.6 million in 2011. Diluted earnings per share increased from $1.28 to $1.61—less steep than the increase in pretax income because we began accruing income taxes this year.

Equally important is the significant progress made in the year toward the execution of our growth strategy. Rubicon’s achievements in 2011 have positioned us for further growth, demonstrated our proven technology leadership, and improved our cost structure. Among the many highlights of 2011, Rubicon achieved the following milestones:

• Solidified our position as the market leader in large-diameter sapphire. Sales of polished six-inch wafers for the LED and RFIC markets grew to 48 percent of total revenue, compared with 24 percent in 2010 and 10 percent in 2009. Rubicon has shipped more than 230,000 polished six-inch sapphire wafers to date—more than the rest of the sapphire industry combined.
• Developed an internal capability to convert powdered aluminum oxide into the raw material form used in our crystal growth furnaces, and moved that process into production. Processing our own raw material reduces cost and provides greater control over quality.
• Completed the upgrade of all crystal growth furnaces to the current generation of our furnace technology to improve yields and reduce cost.
• Refined the process for producing 200 kilogram boules—the largest sapphire crystals in the world. This capability now transitions from the research and development stage to production. Near term, this vividly illustrates our technological leadership and enhances our ability to serve the optical market. Longer term, it provides a platform for producing 12-inch-diameter sapphire substrates—well ahead of today’s market requirements.
• Ramped up production at the new crystal growth facility in Batavia, Illinois, with the latest generation of our furnaces, which produce large-diameter crystals with improved yields and lower cost.
• Brought on line the new polishing facility in Penang, Malaysia and began volume production of large-diameter wafers.

The milestones that extend Rubicon’s technological leadership in sapphire also create an efficient cost structure that we believe is unmatched in the industry. We have all steps of the sapphire production process under our own “roof,” from processing raw material through epi-polishing, and this vertical integration provides tight control of both quality and cost. Vertical integration is a strong differentiator for Rubicon that you will read more about in this report. From a cost perspective, we process our own raw material, design and build our own highly automated crystal growth furnaces, and have located our manufacturing operations to provide maximum cost savings while providing maximum protection of our intellectual property. Building a vertically integrated manufacturing platform that provides cost efficiencies and quality control at each step of the sapphire manufacturing process took enormous effort but now positions us uniquely in the market.

In 2011, Rubicon demonstrated its industry-leading capability and capacity for six-inch and larger-diameter sapphire wafers. Demand for large-diameter wafers, including six-inch diameter and larger wafers, is expected to increase in coming years as the LED market expands and LED chip manufacturers look to realize the greater efficiencies gained from using larger-diameter substrates. Moving to a large-diameter platform, however, is not a simple task and requires a great deal of process development and investment by our customers. We believe that more LED manufacturers will make this move and that, in time, large-diameter sapphire will become the market's preferred substrate.

We believe the markets we serve have tremendous growth potential. The adoption of LEDs in general lighting is still in its infancy, but the economics are becoming increasingly compelling. There is still significant market share to be gained by LEDs in the backlighting market, and LED use in automotive applications is growing rapidly. In addition, RFIC applications based on sapphire as well as optical applications are in increasing demand. Therefore, we believe growth in demand for sapphire substrates is inevitable in the coming years. However, given the relative immaturity of these markets, we have, and will likely continue to see, much volatility. We expect 2012 to start out slow with increasing demand throughout the year ahead.

We are confident that our markets will provide enormous opportunity going forward and that we have positioned ourselves to maintain our position as the provider of choice for sapphire products in the very dynamic markets we serve. I remain committed to building shareholder value by continuing to provide the best value for our customers and evolving our technology to maintain our market leadership and address new markets.

Sincerely,

Raja M. Parvez
President, Chief Executive Officer and Director