Evergreen Solar Continues Its Downward Spiral

Q1 financials announced. Conference call canceled. What’s next for the struggling PV module vendor? “Restructuring” ahead.

Eric Wesoff May 12, 2011

Eric Wesoff

Editor-at-Large
Greentech Media

Eric Wesoff is Editor-at-Large at Greentech Media. Prior to joining GTM, Eric Wesoff founded Sage Marketing Partners in 2000 to provide sales and marketing-consulting services to venture-capital firms and their portfolio companies in the alternative energy and telecommunications sectors. Mr. Wesoff has become a well-known, respected authority and speaker in these fields.

His expertise covers solar power, fuel cells, biofuels and advanced batteries. His strengths are in market research and analysis, business development and due diligence for investors. He frequently consults for energy startups and Silicon Valley's premier venture capitalists.

The saga of Evergreen Solar (NasdaqCM: ESLR) continues to deliver bad news.

The company canceled tomorrow's scheduled conference call and issued a press release with its Q1 financial results.

Revenues for the first quarter of 2011 were $35.3 million, down 60.4 percent compared to fourth quarter of 2010 revenues of $89.3 million.
Shipments for the first quarter of 2011 were approximately 17.8 megawatts, compared to fourth quarter of 2010 shipments of 46.6 megawatts.
Average selling price for the first quarter of 2011 was $1.86 per watt, down approximately 2 percent from $1.90 per watt recorded in the fourth quarter of 2010.
Gross margin for the first quarter of 2011 was -62.5 percent compared to -84 percent in the fourth quarter of 2010 (an improvement).
Operating loss for the first quarter of 2011 was $46.2 million, compared to $399.1 million for the fourth quarter of 2010. Operating loss in the fourth quarter of 2010 was impacted by an inventory write-down and impairment of long-lived assets totaling $377.5 million in connection with the company's decision to close its Devens manufacturing facility.
Net loss for the first quarter of 2011 was $33.4 million compared to $411.0 million in the fourth quarter of 2010.
Cash and cash equivalents, including restricted cash, as of April 2, 2011 were approximately $38.5 million and were approximately $33 million at April 30, 2011.

The press release continues: "As previously disclosed, the Company's near-term liquidity has been negatively impacted as a result of its low year-to-date sales volume and potentially slower sales for the remainder of this year combined with expected increased pricing pressure. Furthermore, cash to be realized through the reduction in accounts receivable and inventory from the recently closed Devens facility will be less than previously expected and will take longer than expected to realize. Accordingly, the Company believes it will need to secure additional sources of cash sooner than expected and has retained financial and legal advisors to actively evaluate restructuring alternatives."

Evergreen has had warnings from Nasdaq over delisting, painful debt restructuring plans and numerous successive money-losing quarters. The firm lost $54 million through the first nine months of 2010. The firm recently closed down the Devens plant in Massachusetts. That represented a loss of 800 manufacturing jobs, a substantial portion of the company's workforce.

It was a black eye for the state and the decision-making process that provided $58 million in state aid to the firm. Admittedly, the state's intentions were pure: Massachusetts wanted to foster the growth of green manufacturing jobs.

Last quarter, Evergreen was looking to exchange $200 million of the company's notes maturing in 2013 for new notes due seven years later, but investors agreed to exchange only 23 percent ($45.4 million) of the targeted amount. Evergreen canceled another offer for $165 million of a different series of bonds due in 2015 because a minimum of $50 million was not tendered before the Feb. 11 deadline.

The firm has an innovative "string-ribbon" silicon technology that significantly reduces the amount of silicon used in a solar panel. It's a formidable technology -- but it has been deployed in Massachusetts, a state with formidably high labor, energy and material costs. It's just about impossible to compete against China's silicon solar dragons like LDK, Yingli, JK Solar, and Suntech from a module factory in New England.

This news needs to be viewed through the lens of Evergreen's once high-flying history.

Ten years ago, Evergreen Solar had a successful IPO. Venture investors like Nth Power did very well in that liquidity event.

The solar industry in 2000 was tiny compared to the current market, totaling somewhere in the 175-megawatt range, a figure that pales in comparison to the approximately 16 gigawatts that shipped in 2010. At the time, Evergreen's string ribbon technology seemed to offer an innovative, lower-cost alternative to conventional crystalline silicon growth with the potential to lower the amount of silicon per watt.

But a decade of scaling-up and innovation across the solar value chain would appear to have left the once-lauded Evergreen behind.

The Evergreen saga is illustrative of the falling costs in this market, the questionable value and differentiation of an innovative process that doesn't come along with innovative pricing -- and a grave warning to any solar module company with stubbornly high cost structures.