NEW YORK (
Energy Conversion Devices
reported less-than-encouraging earnings this week.
UBS analyst Stephen Chin downgraded Energy Conversion Devices to a sell and revised his price target from $11 to $6. Chin cut his June 2010 Energy Conversion Devices earnings forecast to a loss of $2.40 per share, from a loss of 71 cents; for 2011, the UBS analyst forecasts a loss of $1.50, as opposed to his previous forecast for a profit of 18 cents.
Wedbush Securities analyst Christine Hersey wrote that Energy Conversion Devices will continue to struggle with oversupply, and did not see the fact that company management chose not to provide fiscal 2010 production or revenue guidance as a good sign. The Wedbush analyst is now forecasting an Energy Conversion Devices loss of $3.19 for fiscal 2010, versus a previous estimate of a loss of $1.94. For 2011, Wedbush expects a loss of $2.32, versus a previous estimate of $1.69.
None of which are promising signs, but it all ultimately comes down to the cost reductions that these solar firms are able to execute on at a time when price and cost is under considerable pressure across the solar industry.
Energy Conversion Devices president and CEO Mark Morelli said in the earnings release, "We are confident in our ability to achieve 12% laminate conversion efficiency and less than $0.95 cost per watt."
However, Energy Conversion Devices' CEO provided no timeline for that cost reduction. Energy Conversion Devices did say it will hold a technology roadmap day in the spring 2010.
What's more, Wedbush analyst Christine Hersey noted that Energy Conversion Devices, after operating at 50% capacity in the previous quarter, will now be at 25% capacity in the next quarter. Hersey described the situation as a Catch-22 for the company -- they need capacity to go up to be able to drive cost reductions, but they have an existing inventory backlog to work through first, at a time of declining prices.
In light of all this, the prudent investor will have to pay more attention to how these Energy Conversion Devices and Evergreen Solar manage their short-term cash.
Energy Conversion has already been in the position of converting cash into inventory and not converting that inventory back into cash sales through the second half of 2009. But the situation may be even more dire for Evergreen Solar. After its earnings on Tuesday, the Evergreen management said that the solar company will have to raise more capital immediately.
Existing shareholders of Evergreen reacted to that news as expected, when shareholders are facing share dilution through a secondary or convertible offering: Evergreen was down more than 7% on Wednesday.
Evergreen's stock price was at $1.19 on Wednesday afternoon, much lower than its price per watt. At least Evergreen has made progress on reducing something.
Stuart Bush, an analyst at RBC Capital Markets, said that a lot has to go right for Evergreen just to operate on a positive-cash flow basis, let alone be profitable enough to pay off the current debt load. Bush noted that at a time when Evergreen has $90 million in the bank, it has $97 million slated for project spending in 2010, two-thirds of that in the year's first half. "They've lost credibility in being able to communicate a path to profitability," Bush said.
Wedbush's Hersey, who maintains an underperform on Evergreen, reminded investors that Evergreen has pulled a rabbit out of its hat before. Evergreen was previously able to land a joint venture with a Chinese investor that has helped lower costs. On the other hand, another Evergreen joint venture in Germany is facing bankruptcy.
Evergreen talked about a technology breakthrough during its earnings call that would allow it to produce its wafer at a standard size, and Wedbush's Hersey said that could be the type of rabbit-from-the-hat that saves Evergreen, allowing the solar company to license the wafers to a wide range of solar cell and module makers.
However, it is still a technological dream for a solar company that is cash-strapped.
All of which begs the question: Should solar investors be banking on either Evergreen Solar or Energy Conversion Devices after the latest bleak earnings? Take the poll below to learn the consensus of
-- Reported by Eric Rosenbaum in New York.
This poll is a shortened version of a two-part feature on the threats faced by Evergreen Solar and Energy Conversion Devices. To read the complete version of the two-part story, click on the links here:
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