ECD Lays Off 500, Furloughs 400, Amid World Solar Power Glut
AUBURN HILLS -- Energy Conversion Devices Inc. (Nasdaq: ENER) said this week that production has been suspended at its Uni-Solar thin film solar panel plants based on a glut of supply in the industry.
ECD said the shutdown was among "several actions to further management's restructuring of the business in response to the dynamic and challenging solar market conditions."
The company said it has also begun discussions with holders of the company's outstanding covertible notes due 2013 to restructure the notes, and would postpone a conference call discussing the company's third quarter results.
The company said the production suspension would place on temporary furlough about 400 manufacturing employees at its plants in Michigan, Ontario and Mexico. The company said it plans "to resume production in its manufacturing facilities as soon as possible once the existing inventory has been sold and market conditions warrant. The company can return to normal production levels within 60 days."
Another 500 employees will be laid off permanently by the end of the year, the company said.
For the first quarter of fiscal year 2012 ended Sept. 30, the company said it expects to report total revenue of approximately $22 million. This compares to consolidated revenue of $65 million in the first fiscal quarter of 2011. The company didn't provide a profit or loss figure. Company spokesman Michael Schostak said that figure will be released with the company's 10Q quarterly report to the federal Securities and Exchange Commission within the next few days.
In the first quarter, ECD's United Solar subsidiary shipped 11 megawatts of product, far below it capacity.
As of Sept. 30, the company held $130.2 million of cash, cash-equivalents, restricted cash and short-term investments, a reduction of $10.5 million during the quarter.
"These operating results highlight the challenges facing us and the solar industry today," said Jay Knoll, ECD's interim president. "With reductions in incentives in our core European markets and a volatile credit market, solar projects are having tremendous difficulty closing. These factors combined with a flood of cheap modules from foreign manufacturers have created an environment where very few projects are getting completed without self-financing and steep discounts. The economics of this environment require us to rethink our approach to the sales process and rationalize our cost structure, both of which are currently underway."
Schostak said the Chinese are being very aggressive in solar markets and "you can make an arguemnt that there's illegal or not fair trade activity going on," but that the solar industry currently "faces a situation where there's twice as much supply on the market as there is demand." Cuts in government subsidies for solar power in Europe, as well as an unwillingness to make capital investments there caused in part by the continent's financial crisis, also play a role.
In the meantime, Schostak said, "companies like ECD need to take steps to weather this storm."
One of ECD's steps, he said, is to open up sales in parts of the world other than Europe and the U.S. ECD recently completed shipments to Brazil, South Korea, India, the Caribbean and China. Solar sales to customers outside of Europe and North America accounted account for about 40 percent of total shipments in the most recent quarter, compared to 4 percent in the prior year's first quarter.
Also, upgrades to existing capital equipment are underway at its Greenville plant and the retrofitted line is expected to begin pre-production testing and optimization in mid-2012. With the successful implementation of this new technology, ECD expects to improve its products' sunlight-to-electricity conversion efficiency by up to 50 percent. This will provide the benefit of increasing marketability of the products with added value to customers, while significantly reducing ECD's production costs.
Some analysts have openly speculated that the company could be headed for banrkuptcy. Responded Schostak: "I don't comment on rumors, but what I do say is that we have an extremely viable product in an extremely viable market, and we believe that market is not going anywhere and it's only getting more economical." And as a practical matter, he said, the company has $130 million in cash, burned through only $10 million of that in the most recent quarter, and with austerity measures "the burn rate will get even smaller."
Separately, ECD's Ovonic Battery Co. subsidiary generated $2.3 million in the quarter in combined royalties and license fees from its proprietary nickel-metal-hydride rechargeable battery technology. ECD announced in July that it intended to divest OBC in a closed-bid auction and is currently proceeding with this sales process. ECD intends to invest the proceeds from the sale of OBC in its United Solar business to support funding of its technology roadmap and initiatives.
More at www.uni-solar.com.
