Can Energy Conversion Devices Survive?

If you've been following Energy Conversion Devices (Nasdaq: ENER  ) for long you know the company is full of promise and risks. The company's new PowerShingle product could change the way we think about roofing and energy all at the same time. Companies such as Toys R Us and Coca-Cola Enterprises have put their faith in Energy Conversion Devices products, but the market has told us a different story about the company.

Shares have fallen 75% over the last year and are now struggling to stay over $1. So can Energy Conversion Devices survive?

It's all about the Benjamins
Let's start by looking at the company's cash situation. At the end of the first quarter, Energy Conversion Devices had $161.7 million in cash and short-term investments. Convertible debt stood at $228.8 million, and this debt matures June 15, 2013. The balance sheet isn't going to sink the company today, but it's looming on the horizon.

On the income statement, last quarter Energy Conversion Devices took a $222.8 million noncash loss on its Solar Ovonics division. This was partly driven by reduced incentives in Europe, which led to revenue falling 70% to $21.5 million in the quarter. Based on the sales drop, Energy Conversion Devices was hit much harder than LDK Solar (NYSE: LDK  ) , JA Solar (Nasdaq: JASO  ) , and Trina Solar (NYSE: TSL  ) , who all rely heavily on Europe for demand. Could this be poor execution by management or second-rate products? I'll get to that in a minute.

With all of that bad news on the table, we can get to the positives. Operations has burned through only $2.8 million in the last nine months, and as bad as the fiscal third quarter was, only $2.5 million of cash was burned in the quarter. Investing activities ate up another $19.1 million, but investing cash flow can vary wildly quarter to quarter.

The bottom line is that the company should have enough cash and a low enough burn rate to survive until it's time to refinance its debt. And that's when the rubber meets the road because it is going to have to show major operational improvements to get bondholders to pony up for more cash.

Redefining solar
Energy Conversion Devices is trying to redefine solar by making thin films that roll out onto rooftops or can be used as shingles in residences, but it is still playing catch-up on technology. Uni-Solar, an Energy Conversion Devices subsidiary, recently touted the 12% efficiency of its latest large-area solar cell using nanocrystalline silicon to make thin-film panels. The problem is that most competitors have passed 12% efficient panels, not just cells, long ago. Uni-Solar's PowerBond PVL product, while easier to install than competitors, is far less efficient than First Solar's (Nasdaq: FSLR  ) thin-film or Hanwha SolarOne (Nasdaq: HSOL  ) and JinkoSolar's (NYSE: JKS  ) monocrystalline modules.

Solar Panel

Efficiency

Energy Conversion Devices PowerBond PVL 6.7%
First Solar 11.6%
Hanwha SolarOne 15.3%
JinkoSolar 15.7%

First Solar's thin-film panels, which would be the most comparable to Uni-Solar, are nearly twice as efficient as PowerBond PVL. The only real advantage Uni-Solar has is that it's lightweight for rooftop applications that don't have the structure to hold heavier panels.

When you don't have industry-leading efficiency or cost structure, it's tough to make a solid profit. But trends were headed in the right direction until the tough fiscal third quarter, which should give investors some hope. In the first two quarters of the fiscal year, products sales resulted in an 18.7% gross margin. That wouldn't lead the industry, but it isn't too shabby.

Foolish bottom line
Based on less efficient panels, falling sales, established competition, a high debt load, and a management team that is in flux, I have to seriously question whether Energy Conversion Devices can survive. But the company's innovative products, increasing efficiency, and improving margins have me seeing a sliver of hope. That said, conditions have to turn around fast.

When I wrote last month about the possibility the company was on its last leg, readers questioned how I couldn't see a bright future ahead. But since then shares are down 27% and bankruptcy will be the company's path without big improvements before debt comes due. This looks like a boom or bust stock if I've ever seen one, and I'm betting it goes bust. Which side are you on? Leave your thoughts in our comments section below.

Interested in reading more about Energy Conversion Devices? Click here to add it to My Watchlist.

Fool contributor Travis Hoium owns shares of First Solar. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

Motley Fool newsletter services have recommended buying shares of First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (16) | Recommend This Article (5)

Comments from our Foolish Readers

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  • Report this Comment On June 22, 2011, at 4:44 PM, ecdfan wrote:

    Travis:

    First, the company has never generated positive free cash flows (operating cash flows less capex) on annual basis in its 51 year history - focusing just on operating cash flows misses the big picture - the company is the most efficient and longest-running publicly traded money-burning machine in the world.

    Second, the cash on hand is not enough. The imminent cash burn will take care of all the cash by mid 2012, at which point there will be a Chapter 11 filing, a year ahead of the convert maturity.

    Third, the company is now headed by Mr. Knoll, who hails from a fraud and is the facebook buddy of the former CEO Mr. Morelli.

    Fourth, the so-called PowerShingle is fake - see http://guntherportfolio.com/2010/10/uni-solar-powershingles-... . The company's web site claims that the PowerShingle will be released by mid 2011, that is, in 8 days ( http://www.uni-solar.com/products/residential-products/power... ). Of course, since it is fake, it won't happen.

    Fifth, the touted "12% efficiency" is a scam, just like the 12.2% cell efficiency announced in 1985 (yeah, 26 years ago) by the current Chairman of ENER's solar sub. As you noted, ENER's most efficient module in production is just 6.7% inefficient. Period.

    Sixth, being lightweight is no advantage. Every roof in the developed world built over the past 20 years can take the extra 3-5 psf dead load from regular glass PV panels on lightweight non-penetrating )or penetrating) racks.

    Seventh, the convert is trading at a 46% yield. What better indicator of imminent bankruptcy?

  • Report this Comment On June 22, 2011, at 5:13 PM, jefftg wrote:

    Real World Return on Investment.

    http://www.uni-solar.com/wp-content/uploads/pdf/Energy_Produ...

    It all comes down to how many kilowatt hours are being produced and the competitors panels become very inefficient with a little cloud cover or when it gets too hot.

    I think this article is missing the best attribute when it says" "The only real advantage Uni-Solar has is that it's lightweight for rooftop applications that don't have the structure to hold heavier panels". Does the writer have an agenda?

  • Report this Comment On June 22, 2011, at 6:03 PM, jefftg wrote:

    I needed to add one more point that the writer mentioned: "Uni-Solar's PowerBond PVL product, while easier to install than competitors" He mentions the ease of installation, but then he says that it's not really an advantage. Lame!!!!!

    I would consider getting on my roof with some tar, before I'd ever consider installing roof penetrating mounts. That means more people can "Do it Yourself" = (BIG COST SAVINGS). Much better ROI for the DIY people.

  • Report this Comment On June 22, 2011, at 7:00 PM, morganspanner wrote:

    I have been applying solar technology for over 30 years and the unisolar panels are by far the most robust. It was a mistake to stop producing them with a rigid frame. I hope this company survives it has shown great technological prowess and innovation that we sorely need in this country

  • Report this Comment On June 22, 2011, at 7:40 PM, ecdfan wrote:

    jefftg : ENER is lying that their panels generate more kilowatt hours per kW. In fact, data from remote mornitoring systems all over the world show that ENER's panels consistently underperform in terms of kWh/kW yield, especially after the fifth year when the severe long-term degradation kicks in. What, you think only ENER can stick a few bypass diodes?

    ENER's PowerBond PVL product is not easier to install. The glue consistently fails and a mistake is very hard to fix. Why do you think ENER reserved over $30 million for warranties in 2009? Take a look at how the PowerBond PVL looks like just after two years under the Sun: http://picasaweb.google.com/fan.of.ecd/FloridaInternationalU...

    morganspanner: You are lying, of course! ENER's panels are the worst on the market in terms of durability and resistance to long term degradation. In fact, no ENER panel has survived 20 years in the field. You can't even find a 10-year old ENER panel that is still performing within specs! The rigid-frame panels were discontinued because they were losing even more money than the PVLs. The company will not survive 2012.

  • Report this Comment On June 23, 2011, at 12:00 AM, robitybob wrote:

    It is my studied PERSONAL OPINION that ecdfan receives some type of remuneration for trashing ECD in whatever online forum he can find. You should disregard anything he writes. My guess is that his agenda concerns the 33% of-the-float shares currently sold short.

    My agenda is that of a long term follower and when prudent and possible, a shareholder. At this time I am a stockholder and would be extremely pleased if some surprising news came out that would send the short sellers buying for their lives.

    If anyone wants to get a real feel for Uni-Solar, they should actually go to the Uni-Solar website and look into the latest large roof top projects in Italy, France and the US. Also do searches on Uni-Solar + Eurocopter and Uni-Solar + Toys"R"Us. Ask yourself, "do the people installing these size projects know something I don't?"

    Thirdly, pay attention to the solar landfill cover projects. The landfill covers are just now gaining widespread adoption.

    Lastly, a complete and TRUSTWORTHY analysis of ECD should factor in the approximately 39% ownership of Ovonyx and that company's intellectual property and licensing in phase change memory.

    There is also an amazing array of intellectual property owned solely by ECD and I would bet that anyone looking at all of ECD's patent holdings would be surprised many times over.

  • Report this Comment On June 23, 2011, at 8:55 AM, ecdfan wrote:

    robitybob: ENER is the longest-running publicly-traded scam in the world. So, of course the people "installing these size projects know something" that you don't. The fact is, GM/Opel, the "customer" of Uni-solar's largest "rooftop" project (12MW in Zaragoza/Spain), went belly up shortly after the project completion. GM, who touted this project in their infinite wisdom, must have been quite surprised when it turned out that the 60 million EUR Uni-solar system was generating less than 20% of the promised electricity.

    The Unisolar landfill cover projects are a complete failure. The Tessman Road landfill system, which started the ARRA garbage scam to steal taxpayer money, is now dead, after underperforming since the get-go, according to the remote monitoring system.

    The ownership in Ovonyx (not 39%!) is worth zero. Ovonyx will file for Chapter 11 by the end of 2012, as phase change memory is a techno-Ponzi - it will never be commercialized in volume as it sucks in terms of write speed and power consumption, is too costly, it is unreliable, and does not scale.

    The rest of the "amazing array of intellectual property" (actually, the fantasies of a Charlatan) are worth zero, and the NiMH royalties are going away.

    Chapter 11 cannot be avoided.

  • Report this Comment On June 23, 2011, at 9:22 AM, JacobCooper wrote:

    Before you take the word of some internet basher who hides behind his pseudonym, keep in mind that Uni-Solar has been around for 20+ years, and ECD for 50+ years.

    Let's look at the FACTS.

    1. Uni-Solar has 400+ MW of installations worldwide. As with any manufacturer, there will be defective products, or products installed incorrectly. Look at First Solar's recent battle with factory defects and recalls. Or the auto companies?

    2. Uni-Solar products have been vetted by some of the world's largest and most prestigious companies. Recently, they won a Boeing project in SC, Toys R Us in NJ, school district in NV, Eurocopter in France, and thats just in the last few months. In recent years, Coca-Cola and ProLogis have been repeat customers. REPEAT customers- which means they are happy with their first installations and invested more capital on additional installations.

    3. Uni-Solar products have been "banked" by some of the largest financial institutions, including General Electric Capital, Credit Agricole, Investec and Dexia Bank. Not to mention corporate banking partners JP Morgan, UBS, Credit Suisse. Large financial institutions don't get into bed with a company or its products without a ton of due diligence.

    4. Uni-Solar's technological advantage--energy yield- is proven in both the lab and the field. In addition, the power density will be increased through its announced technology roadmap.

    5. The new PowerBond, improved conversion efficiency and quality, was on display at the Intersolar show in Germany and received a warm reception from customers.

    6. The Ovonic Materials Division, with its myriad patents and blue chip licensees, generates positive income and cash flow and is likely valued at greater than the market cap of the entire company!

    7. The Ovonyx memory technology has been backed by many serious technology players including Samsung, Micron, Hynix, Intel, STM, ATMI, and IBM. It's only a matter of time before this takes off as Samsung already has phones in the market using PCM.

    8. Regarding the debt, the company has been clawing away at it, and as IR Head Schostak said in Forbes, the company has plenty of options on how to deal with it.

    Readers, you can listen to stock bashers or you can examine the facts. I prefer to know the facts.

  • Report this Comment On June 23, 2011, at 11:05 AM, ecdfan wrote:

    JacobCooper: ECD has been around for 51 years, but for the first time in its history is has a huge debt that it cannot pay. Thus, Chapter 11 by mid 2012.

    1. Most of those "400MW" were installed in the past 5 years (and substantial portion of those are already severely underperforming or just dead). As the government lab NREL has shown, ENER's modules suffer from severe long term degradation that kicks in around the 5th year of installation and likely violates ENER's warranty. Unfortunately for those clueless "customers," the problems may show up only after ENER has already gone belly up.

    2. Uni-solar's products have not been vetted. They were just used a shortcut to extract money from the taxpayer. That game is over.

    3. Uni-Solar "banked" products underperform severely. For example, Uni-Solar's largest "banked" project in the world generates less than 20% of the promised electricity (according to the remote monitoring system). Those are the same clueless banks that "invested" in subprime mortgage derivatives and Greek debt.

    4. Uni-Solar's "energy yield" is a complete myth rather than a technological advantage. The technology roadmap is a complete scam (and it has been since 1977) - Uni-solar's most power-dense module is just 6.7% efficient.

    5. There is no new PowerBond. It is the same old undeperforming, deglueing, degrading, and igniting PVL.

    6. The Ovonic Materials Division is rapidly shrinking as the NiMH royalties are going away.

    7. The Ovonyx memory technology is not backed by anyone - no commercial product on the market uses it. Samsung has no phones on the market using PCM - Samsung tried to put some, but power-consumption issues forced Samsung to dump PCM and replace it with regular, standard NOR last summer.

    8. The company has "been clawing away" the debt by severely diluting the common stock shareholders in a process called a stealth bankruptcy. Now that game is over as well - the company is now firmly on the path of actual bankruptcy by mid 2012.

    And those are the facts.

  • Report this Comment On June 23, 2011, at 12:08 PM, robitybob wrote:

    This week there was news published regarding a new development in using phase change cells for "Study brings brain-like computing a step closer to reality". It is quite interesting stuff.

    http://www.physorg.com/news/2011-06-brain-like-closer-realit...

    This is a continuation of the work of Stan Ovshinsky and ECD. ECD holds several patents for the basic concept and for specific device designs. Here is a link to Stan's very succinct paper on the The Ovonic Cognitive Computer:

    http://www.epcos.org/library/papers/pdf_2004/01paper_ovshins...

  • Report this Comment On June 23, 2011, at 1:38 PM, JacobCooper wrote:

    Where does this notorious ecdfan get his alleged "facts"? internet chat rooms? I for one will take the word of large Fortune 500 companies over some internet troll with an agenda any day.

    1. If a "substantial portion" of those 400 MW were already underperforming or dead, why would Boeing install the products on the roof of their new showcase factory? Why would GE finance installations where their payback was dependent on the panels? Why would Toys-R-Us partner with Uni-Solar to create what was the largest rooftop installation in North America? Just doesn't make sense to me.

    2. So you're not in favor of government incentives and loan guarantees? That's fine- but how is that germane to this thread?

    3. Ah yes, the "all banks are stupid" logic. You must be the guy keeping the checking cashing stores in business with your unemployment checks. And you base your whole argument on something you found on the internet? If that were the case, I've got some cash in Nigeria I need your help in repatriating.

    4. Again, where do you come up with your vitriol? USO's energy yield advantage has been proven by NREL and universities for years. Check out the company's bankability report on their website for more info on those studies. Oh wait, I forgot, that document is a myth too. Everything is a myth and a scam.

    5. The new PowerBond is actually 7.2% efficient, but that's not the point. The point is, you refuse to accept reality. Call up any of USO's customers who were at Intersolar and ask them if the PowerBond is fake.

    6. Perhaps your version of reality is different than everyone else's. But in my reality, gas prices are up, hybrids are selling out and they all run on NiMH. Those EV's that run on lithium? Ask Nissan how well they're selling.

    7. Again, reality bites. I'll take the word of Samsung who said they put PCM into phones, over yours who say they didn't. Or is Samsung lying in their press releases, too?

    8. Inventing new words are we? No such thing as a 'stealth bankruptcy'. In a bankruptcy, a plan is devised to pay off a company's creditors in order of priority, with anything left over being given to shareholders. That's not what ECD did. They exchanged debt (higher in priority) for stock (lower in priority), which had the effect of strengthening the value of the equity (less debt hanging over the equity.) Playing the argument through, if the company exchanged all its debt for equity, shareholders would be on an even plane with the former debtholders and they would still have value left in their shares. How is this anything resembling a bankruptcy?

    Readers, please consider your sources. Personally, I'd trust Fortune 500 companies and international financial firms over some guy in his basement and stuff he found on the internet.

  • Report this Comment On June 23, 2011, at 2:33 PM, ecdfan wrote:

    robitybob: PCM is always "closer to reality," as it sucks more and more money, and never becomes commercial in volume. Mr. Stan Ovshinsky is the Charlatan Extraordinaire who now competes with ECD. Visit his very promising brand-new web site: http://ovshinskyinnovation.com/

    JacobCooper:

    1. Boeing is not installing any Unisolar products on any roof. GE Finance has been known to make disastrous investments and almost brought down GE in 2008. Toys-R-Us' game will become apparent shortly.

    2. Uni-solar customers are not interested in installing PV that makes economic sense. They are interested in stealing taxpayer money.

    3. Dexia bank is in trouble: http://www.bloomberg.com/apps/quote?ticker=DEXB:BB

    4. Neither NREL nor any university has proven that ENER's modules deliver energy yield advantage over the life of the module, asthat would be simply untrue. ENER's bankability report is fraudulent, as evidenced by this: http://docs.google.com/View?id=dwv7q4q_114dmg79wcc

    5. I see no 7.2%-efficient module here: http://www.uni-solar.com/products/commercial-products/pvl/ . So, you lied.

    6. You are lying that all hybrids run on NiMH. Plus, not all NiMH batteries bring royalties to ENER. The fact is, NiMH royalties to ENER are declining and will go to zero within 5 years or so (by then ENER will be already bankrupt, of course)

    7. Show me the phone model that has PCM in it! And, no , Monte Slider GT-E2550 contains no PCM - it has plain old NOR in it. Buy it and you will see!

    8. If there were no such thing as stealth bankruptcy, how come ENER engaged in it? In a stealth bankruptcy, company's ownership is transferred stealthily from the clueless common shareholders to the bondholders without the presence of a judge. In an actual bankruptcy, the judge makes the transfer. ENER's bonds trade at 42% yield right now - bankruptcy is imminent!

  • Report this Comment On June 23, 2011, at 9:35 PM, robitybob wrote:

    Anyone reading this far down the comments has a good opportunity to see how malicious ecdfan is regarding Energy Conversion Devices. He stated above "Boeing is not installing any Unisolar products on any roof." In ecdfan's world the fact that it is actually South Carolina Electric & Gas Company that is installing the Uni-Solar panels on the new Boeing campus at the Charleston International Airport, gives him the opportunity to construct his statement so as to give the impression that the project does not exist. How about it ecdfan, will you acknowledge that the Boeing project is real?

    http://www.postandcourier.com/news/2011/apr/20/boeing-sceg-t...

  • Report this Comment On June 23, 2011, at 10:25 PM, robitybob wrote:

    If you are interested in the phase change memory technology of ECD and Ovonyx, this interview was just put online:

    "Thoughts on Memory Trends from Micron's Dean Klein"

    http://www.hpcwire.com/hpcwire/2011-06-23/thoughts_on_memory...

  • Report this Comment On July 02, 2011, at 1:29 AM, UberTech wrote:

    Such vitriol!

    JacobCooper wrote: Where does this notorious ecdfan get his alleged "facts"? internet chat rooms?"

    My suspicion is that ecdfan may be a disgruntled former employee or investor, out to cause as much damage as possible.

    As a former employee myself, I take extreme exception to most of what he says. Yes they have their problems, the biggest of which was not making a good transition from an entrepreneurial/R&D company to a product-producing company, selling more than just ideas and licenses. It requires a completely different management mindset. Hopefully, whoever they find to replace Mr. Morelli will come from a manufacturing or production background, and from a "practical, problem solving level", not just an upper management MBA who's spent his or her career in an office making decisions based on "management theory". (I'm afraid that Bob Stemple didn't qualify in this regard. I liked him, but he didn't really bring what was needed to the company.)

    I agree that their PV laminate products are not as good as they might be, partly because they essentially stopped improving them until recently. They are still the best solution for some types of installations. They also made the mistake of switching their focus to only large-scale installations, and virtually ignoring the low-end. This meant that they had no alternative market when the economy crashed and those large projects dried up, leaving them with a huge overcapacity problem and excess inventory.

    As for the rest of ECD's IP portfolio, there is still plenty of value there. My personal opinion is that they need to leverage off of the potential synergies between their various energy products, and focus on a wider range of customers. This could be the long-term solution that might get them out of the current mess, and protect them in the future.

    They had made the classic mistake of putting all their eggs in one basket, the same way the auto companies had focused on large SUVs. It takes awhile to shift production and focus to serve the new market conditions. I'm hoping they have the time and resources remaining to make the needed changes.

  • Report this Comment On July 05, 2011, at 11:00 PM, arguelles67 wrote:

    UberTech,

    You have great insight!

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