Here is another viewpoint. Any knowledgeable people here care to respond to his specific issues?
New twist to old story
Commentary: Energy Conversion's selling a stale tale
By Herb Greenberg, MarketWatch
Last Update: 6:01 AM ET Jan. 25, 2006
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SAN DIEGO (MarketWatch) -- When you do what I do, you learn something early on: it's the retreads investors should be worried about.
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It's the companies like Parkervision, Advanced Magnetics and now Energy Conversion Devices -- companies whose stocks go through cycles of popularity as trends, promoters and a new cycle of investors enter the market.
Energy Conversion (ENER:
Energy Conversion Devices Inc
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Last: 57.08+2.92+5.39%
7:30am 01/25/2006
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ENER57.08, +2.92, +5.4%) , whose technology is based largely on the creations of its 82-year-old president, Stanford Ovshinsky, is like a cat when it comes to the number of lives it has. The current euphoria surrounding the company is that it's an alternative energy conglomerate that is poised to profit from everything from solar and a new kind of computer memory to batteries for hybrid cars.
More recently, the company's stock got a kick from an announcement that it has a licensing deal with Samsung for its memory.
But a closer scan of the story shows this is just more of the same from a company that has lost money in all but a handful of its many years as a public company.
Why should this go-round be any different? The company has a host of reasons, which I'll get into in a second, and a spokesman proudly points out that the stock has risen in line with oil. Indeed it has -- and that's the problem and that's why it would behoove investors to do thorough research, including checking out stories written about the company in the 1980s and 1990s in Business Week, Forbes and elsewhere, before buying into the latest spin.
This is, after all, a company with a history of spins.
Consider
The solar spin: It's different this time, the spokesman says, because Energy Conversion's Unisolar division, which makes solar panels, is operating at full capacity and is "sold out." Indeed it is, but not because it's thin film photovoltaic technology is the latest and greatest technology. It isn't. It's sold out because there's a shortage of silicon, a key material in the more popular crystalline solar panels. Thin-film's claim-to-fame is that it can produce power in partial shade, which it can. But it's also generally regarded as less efficient than crystalline panels, which are in short supply at a time of high demand. Put another way: Unisolar was in the right place at the right time to help fill the void for a shortage that is expected to end in a year or so. And even though Unisolar claims to be operating at full capacity, quarterly sales haven't reached the capacity level of 6 megawatts. One reason could be competition: Despite its inefficiencies, Unisolar has attracted competition from the likes of Honda, Mitsubishi, Sharp and a number of upstarts.
The battery spin: It's different this time, the spokesman says, because the company's joint-venture with ChevronTexaco, dubbed Cobasys, recently announced that its battery will be used on the new Saturn VUE hybrid. If solar is the sizzle to Energy Conversion, batteries for hybrid cars are the sex. The company receives royalties on Sanyo nickel-metal hydride batteries used in gas-electric hybrid cars.
Just one catch: battery royalties are miniscule, amounting last quarter to a mere $700,000. The relatively small size of the royalties reflects the fine print: the company only receives the royalty on hybrid cars made in the U.S. That leaves out the top-selling Toyota Prius, which is not made here. Royalties end in 2014, but some industry experts believe that by then nickel-metal hydride will be replaced by Lithium-ion, or LiIon, which is cheaper and has faster charge times, though still not deemed as safe for cars as nickel-metal hydride. (One leader in next-gen LiIon technology, ironically, is another blast from the past: perennial retread Valence Technology.) Meanwhile, there's the joint-venture with Cobasys, which sounds great on paper, but hasn't really given a timeline on when, if ever, it will make money.
The memory spin: It's different this time, the spokesman says, because Energy Conversion recently signed on Samsung as a licensee for so-called and still developmental "phase-change OUM" flash-memory killer from Ovonyx, which is part-owned by Energy Conversion. This combines the sex and the sizzle and amounts to a call-option on the company's future. Besides Samsung, other "partners" who would owe royalties to Energy Conversion include STMicroelectronics, BAE Systems and the grand-daddy of all, Intel Capital -- part of Intel -- which is also an Ovonyx investor. Sounds great on paper, but even if OUM becomes the next flash, most experts agree it won't be another three to five years before it has evolved enough to start generating revenue. Samsung says it hopes to have "samples" of OUM technology by the end of this year.
And don't get fooled by announcements of big-name partners like Samsung. We'll call this the partner spin. These companies are always investing in and partnering with providers of potential new technologies. Energy Conversion has a history of going through joint-venture partners the way sick people go through Kleenex. There was Bekaert, a Belgian wire and material company, which parted ways several years ago after Energy Conversion came close to running out of cash. Before that, there were many, including International Telephone & Telegraph, 3M, Arco, American Natural Resources, General Motors, Canon and Standard Oil of Ohio. Oh, and the deal with ChevronTexaco has been amended to reduce the amount of money ChevronTexaco must put up.
Even with the revolving door of partners, Energy Conversion has managed to build an accumulated deficit of $292 million. The financials are so bad that Energy Conversion gets an earnings quality grade of "F" from Gradient Analytics, which cites a laundry list of red flags, including a larger-than-expected first-quarter loss on lower-than-expected revenue. The magnitude of the miss, according to a Gradient report, "tends to support our earnings quality thesis that the prospects for ENER achieving profitability remain highly unlikely." At least not by the end of company's fiscal year in July, which had been the company's stated goal for profitability. Now, rather than saying that Energy Conversion is "on track" for profitability, executives have become vague and stopped using a date. In fact, when asked in November if the original goal for profitability is still July or whether it has been "rolled out a bit," Chairman Robert Stempel told investors on the company's last conference call, "We're very much dedicated to return to profitability." He gave no date.
Another day in the life of a stock-market retread.
Herb Greenberg is senior columnist for MarketWatch, based in San Diego. He does not own stocks (except for shares of his employer), and he does not sell stocks short or invest in hedge funds. |
