compoundsemi.com
Is Emcore Moving Too Fast on CPV Spin Out Plans?
Jo Ann McDonald, founding editor
February 12, 2008...The USA economy is in sad shape, chaos rules in Washington DC as politicos embark on an explosive presidential and congressional election year, the renewable energy bandwagon is only starting its uphill roll (and hasn't as yet been fully decorated nor properly fueled), people are only just now starting to get wind of what the field of concentrator photovoltaics (CPV) is all about, yet one of the mainstay compound semi chip and system companies, Emcore Corporation of Albuquerque, New Mexico, is talking seriously about spinning out its CPV division into a stand-alone publicly held company via an independent public offering (IPO).
Don't get me wrong. I love Emcore. Always have, always will. There's simply something about their CEOs, past (Norm Schumaker) and present (Reuben Richards) that evoke basic loyalty and confidence, especially if the loyalist is uniquely close to the company. Ask anyone from Aixtron and they'll likely tell you that I've spent way too many words of praise on Emcore over the years. Indeed, I spent a three year "sabbatical" from journalism to consult to Emcore as its director of corporate communications during the era (1998-2000) when it gradually moved from its pioneer status in Somerset, New Jersey as one of our industry's major suppliers of MOCVD equipment (competing head-to-head with Aixtron) to also become a leading materials and device foundry. That was also the timeframe when Emcore built the Albuquerque facility and solar division and started making its way up the supply chain into the satellite solar and fiberoptics device provider it is today.
A journalist who gets to go inside a key company for a lengthy consulting gig at the level at which I dwelled inside Emcore can attest to the fact that you get to know more about that company, and the overall industry, better you ever could as a journalist covering the industry. Most importantly, when you've been party to ghostwriting many of their words, when you step outside again, you know how to read between the lines. When I put my model CS stock portfolio together three years ago, after having established CompoundSemi Online, Emcore (Nasdaq: EMKR) was the first one in the portfolio, which now includes a mere 100 shares each of: Aixtron (AIXG), Anadigics (ANAD), AXT (AXTI), Cree (CREE), JDS Uniphase (JDSU), Kopin (KOPN), RF Micro Devices (RFMD), Spire (SPIR) and TriQuint Semiconductor (TQNT). The ying-yang they all routinely and collectively go through makes for interesting column fodder, which is the only reason I set it up. As it turns out, right now Spire and Emcore are the only two yielding +$1,000 gains since the original investments. Both include CPV in their product offerings. I bought the original Emcore shares in April of '05 at a mere $3.08/share, and it's trading today at $14.50/share. I bought Spire shares at $4.45 in May of '05, and it's trading today at $17.93. Go CPV technology!
But that doesn't mean it's a smart time for Emcore to spin off its CPV division via a stand-alone IPO. I think the USA economy is so shaky, the country in such political upheaval as the Iraq oil war rages on (...and on, and on) and with CPV still in its technological infancy, that going for an IPO might not be the best thing for Emcore shareholders, who will vote on the matter at their upcoming annual meeting in March. Listening to Emcore's recent earnings conference call, it all sounds rosy and promising. And it is. Reading between all the tiny print that the SEC mandates they send out to shareholders, however, isn't easy, but my instinct tells me there's more to the story. And as any semiconductor industry veteran will tell you, progress in a relatively new sector is always slower than anticipated. Ask anyone in the world of silicon and they'll readily remind you that niche markets are especially fickle. What's more, the renewalable energy sector is especially subject to fickleness due primarily to the gigantic clout the oil industry has over upstart challengers.
Listening to the Emcore recent conference call, (which is accessible online until Feb. 14th) there was considerable emphasis on the pending CPV deal via a Memorandum of Understanding (MOU) between Emcore and SunPeak Solar LLC of Palm Desert, California. The caveats are that SunPeak Solar is depending heavily on two things: acquiring and maintaining huge hunks of cheap land in Southern California near the Arizona border and in the Sultan Sea, and the whims of the US Congress. Doing a bit of online sleuthing, one notes that the only online information available on SunPeak Solar appears to be in connection to the Emcore MOU (Ref: Jan 31, 2008 company news release). Otherwise, no news or information is available about SunPeak Solar. The company has only a bare-bones website and when googling its principals by name, despite the claim that they have "over 90 years combined experience in the development and operation of energy projects in North America and Europe" you get virtually zip on those principals. Plus, when googling the company that evidently preceded SunPeak Solar, UPC International, (and note that you have to add "renewal energy" or you get nothing that relates), it was evidently involved in the acquisition of very large land tracks for wind farms with a bit of controversy.
According to Emcore, SunPeak Solar is depending heavily on the US Congress to grant companies like SunPeak renewable energy investment tax credits (ITCs) via the so-called "economic recovery package" currently before Congress. Anyone who objectively tracks the US Congress these days knows that not much legislation actually gets passed, no matter how many "campaign promises" are spouted, due to gridlock and the Bush Family vetos. Plus, it doesn't take much to realize that most of the pending economic incentive talk is largely election year eyewash. Then there's the pesky holdover fact that Emcore hasn't yet regained its former profitability status from back when it was primarily a CS materials and equipment company. When it went public in the mid-1990s after Reuben Richards and chairman of the board Tom Russell took over the helm from Norm Schumaker, the IPO share price was $10. It reached a whopping $150 at its peak, before the telecom collapse, and now, almost 10 years later, it's just re-approaching $15/share. Plus, Emcore remains in the final throws of settling its stock option difficulties and fully integrating the new management team that results from the headquarters move to Albuquerque and resignation of various members of senior management.
Emcore's top leaders, President and COO Hong Hou and CEO Reuben Richards, however, have been with Emcore for quite a long time now and are obviously extremely knowledgeable about CPV technology and the nascent CPV marketplace. Solar division VPs David Danzillo and Ed Fuller who are likely to be tagged to run the spin off, are doing excellent work and are extremely well-credentialed. So, I have high hopes for the idea in the longrun. If anyone can make it work, they likely can. But personally, I think spinning out the solar division with an IPO when the dust hasn't completely settled from so much change is premature. Shareholders may elect to wait until things settle down a bit more and the path looks a little more defined. We'll see what happens in March. |
