PREVIEW-Sliding sales likely to dim Energy Conversion’s results

* What: Q2 results

* When: Feb. 9

* Weak demand, low utilization seen hurting results

* Visibility remains poor, profitability unlikely soon

By Adveith Nair

BANGALORE, Feb 4 (BestGrowthStock) – Energy Conversion Devices Inc
(ENER.O: ) looks set to report its third-straight quarterly loss
on sliding sales, as weak demand and low utilization continue
to eclipse the solar company’s performance.

The company, which reported five consecutive profitable
quarters before posting back-to-back quarterly losses, makes
lightweight, flexible solar laminates for rooftops and
buildings that convert sunlight into electricity.

For over a year now, Rochester Hills, Michigan-based ECD
has been grappling with dipping demand, hurt in part by a
dearth of funding for solar projects as a result of the global
credit crunch.

In November, it said it would slash production capacity to
50 percent in the second quarter. And a month later, the
company announced plans to cut a fifth of its workforce.

“The issue with this quarter is that they are operating at
a 50 percent utilization, and when that happens, their cost to
manufacture goes up significantly. That is why my loss estimate
is wider,” Wedbush Morgan Securities analyst Christine Hersey
said.

She expects the company to post a loss of 65 cents a share,
on revenue of $49.9 million, while analysts on average expect a
loss of 43 cents a share, on revenue of about $49 million,
according to Thomson Reuters I/B/E/S.

“Low utilization has a big impact. With that, and the
confluence of declining average selling prices (ASP), the
situation is not exactly positive, but it is not the worst case
scenario either,” Simmons & Co analyst Burt Chao said.

Both Chao and Hersey expect prices to fall sequentially.
While Hersey expects second-quarter ASPs of $2.12/watt, Chao
expects single digit declines. ECD had reported first-quarter
ASP of $2.33/watt.

“It is pretty clear that the market expects the results
will not be good, given the signals coming from the company,”
Cowen & Co analyst Rob Stone, who expects a loss of 64 cents a
share, on revenue of about $40 million, said.

ECD shares are so far off about 70 percent from a February
2009 year-high. Since the company last reported results, the
stock has shed over 10 percent.

“The run-rate of their business has been low. A lot of
projects were related to the construction of new facilities or
re-roofing of existing facilities, and construction related
activity has fallen off significantly,” Stone said.

PROFITABILITY UNLIKELY SOON

Both Wedbush’s Hersey and Simmons’ Chao said a return to
profitability does not seem imminent for the company.

“Given the difficult environment, we do not anticipate them
becoming profitable this year. It will also be a tough push at
the beginning of next year,” Chao said.

Hersey said to return to profitability, the company would
have to see enough demand to work off its inventory and to
allow it to return to much higher factory utilization.

“Even then, it is going to depend on what level the ASP’s
are at that point. It’s a bit of a catch-22.”

The analysts also said it was unlikely that the company
would provide much outlook, as visibility remained poor.

“Conditions have not changed that much. And there’s been a
lot of uncertainty with feed-in tariffs (FIT) being revised,
and in some cases, cut, which could impact them,” Hersey said.

In January, Germany unveiled plans to slash subsidies for
solar power in a move to ease the world’s largest solar market
towards free competition, drawing protests from panel makers,
and leaving investors jittery.

Environment Minister Norbert Roettgen had set out a 15
percent cut in FITs for new roof-mounted solar power from
April. [ID:nLDE60J0PA]

Feed-in tariffs, prices that utilities have to pay to
generators of renewable energy, are considered the sector’s
lifeline until grid-parity, the point at which renewables cost
the same as fossil fuel-based power, is reached.

Most industry leaders, including Yingli (YGE.N: ) and Suntech
(STP.N: ) from China, Q-Cells (QCEG.DE: ) and SMA Solar (S92G.DE: )
from Germany and U.S. groups First Solar (FSLR.O: ) and SunPower
(SPWRA.O: ), have big sales exposure to Germany.

“Until Germany actually comes out with a (final) official
proclamation, companies will not be comfortable giving
additional guidance,” Chao said.

Investment Analysis

(Editing by Jarshad Kakkrakandy)

PREVIEW-Sliding sales likely to dim Energy Conversion’s results