Solar Winners: Energy Conversion Devices - TheStreet



) -- A funny thing happened during the Thursday-Friday selloff in solar stocks:

Energy Conversion Devices


was up.

Energy Conversion Devices was the only solar company showing a share price gain on Friday in the early afternoon, even as the level of losses in solar companies came down from Thursday's big declines due to

the furor over Germany's reported plans to move-up its solar incentive reduction to April.

Energy Conversion Devices was able to engineer a share recovery while the entire sector traded down, most likely because of its late Thursday announcement that it had struck a deal to build a late-stage solar assembly plant in France, which would come with some French national and local government tax incentives.

The Nasdaq was down close to 1.5% on Friday as the broader markets weakened on the

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earnings, and the solar sector index was down close to 4%.

Energy Conversion Devices, however, was up 1.6% on Friday in the afternoon, with close to 1 million shares traded above its daily average trading volume.

Energy Conversion moved its European headquarters to Paris last year, and now will build a 30 megawatt solar laminate manufacturing facility in France, more or less a late-stage assembly plant -- the solar cells will still be made in the U.S.

France announced on Wednesday that it was cutting its solar incentive program by 24%, but Energy Conversion said in its release that the resolution to the tariff situation makes France a stronger long-term market,

a point of view mirrored by others in the solar industry.

What's more, Energy Conversion Devices has a focus on the building-integrated market for solar modules that was unaffected by the tariff change. Rooftop solar feed-in tariffs were reduced to 42 euro cents, but the building integrated tariffs remain at a 50 euro cent level.

With the French tariff situation seemingly not an issue, there are still questions as to whether the gains that Energy Conversion has made on Friday are warranted.

Christine Hersey, an analyst at Wedbush Securities, noted that in her talk with Energy Conversion Devices management after the deal was announced, they said it will have no impact on calendar year 2010 results.

France is arguably the most attractive European market for Energy Conversion Devices. What's more, moving end-stage assembly to France will save on shipping costs, and the incentives from the French government for creating jobs may be considerable. Still, the critical issue for Energy Conversion Devices has not changed, and that is its relatively low factory utilization rate versus peers, at a time when average sales price across the solar industry is headed down.

Energy Conversion Devices has already stated that its factory utilization rate will be 50% for the quarter ended in December. Last May and June, Energy Conversion actually put its factory on furlough due to the high inventory relative to demand. The costs of running a factory and manufacturing a solar module have not come down significantly, while the average sales price in solar has come down, and considerably.

"Energy Conversion Devices is running at 50% capacity and the cost to manufacture is higher than the average sales price they can get, and it looks like they will have a negative gross margin for the most recent quarter," Wedbush's Hersey said.

In the quarter ended June 2009, Energy Conversion Devices' gross margin declined from 29% to 10.7%. Since that time, average sales prices in solar have continued to fall, and yet, Energy Conversion Devices' utilization level hasn't picked up. "They've still got to work through the inventory in hand," the Wedbush analyst said.

France is not a big enough market to work through that inventory either, representing a mere blip on the solar map in the short-term, at least, compared to a market like Germany.

Germany will be an issue for Energy Conversion Devices, too, since the solar market moved to Red Alert yesterday when a


report indicated that

a reduction in the feed-in tariff in solar's largest market may be coming ahead of schedule .

If the worst-case scenario of an April move by Germany proves true, it is as bad for Energy Conversion Device as any solar company, and compounds the disconnect between its manufacturing costs, low utilization rate and further declines in the average sales prices of solar modules.

The German solar tariff rumor mill has already sent shares of some of the biggest Chinese solar companies down considerably.

Yingli Green Energy


Solarfun Power Holdings



JA Solar



Trina Solar


, among others, are all on two-day share declines on Friday afternoon.

"It's bad for anyone trying to sell a solar module, and we've seen it before," Hersey said.

In the first half of 2009, when Spain capped its solar feed-in tariffs, the market demand was low, and all the solar players try to gain market share by driving down prices. This trend only serves to widen the gap between manufacturing costs and average sales price.

-- Reported by Eric Rosenbaum in New York.


>>For Solar, When Will the Bleeding End?

>>German D-Day Arrives, Solar Losses Mount

>>For Solar, April May be the Cruelest Month

>>France Cuts Solar Tariff Incentives by 24%

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