This is reminiscent of the Evergreen Solar death spiral.
Energy Conversion Devices (Nasdaq:ENER), a long-struggling supplier of flexible amorphous silicon (a-Si) photovoltaic laminates and building-integrated photovoltaics (BIPV), dropped some bad news on Tuesday.
Calling it a "Restructuring Plan" in a press release and stating that ECD's high inventory levels are forcing a "suspension of company's manufacturing operations," the company reported that it is holding "discussions with representatives of certain holders of [the] company's outstanding convertible notes" amidst "the postponement of the scheduled quarterly financial results conference call."
These phrases are used when a company is in the most dire of financial straits.
I spoke with Michael E. Schostak, the Director of Business Development & Communications at Energy Conversion Devices, and he said, "This is a short-term measure to manage inventory. Given inventory on hand, we felt it was prudent to suspend production and manage cash -- in order to live to see another day." He saw some positive news in a diversifying geographic customer base and some technological innovation in their "nanocrystalline technology."
Four hundred employees in Michigan, Mexico, and Ontario will be losing their jobs or "furloughed," as per the press release.
The release states, "The company expects 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."
For the first quarter of fiscal year 2012 ended September 30, 2011, the company expects to report total revenue of approximately $22 million. This compares to revenue of $65 million in the first fiscal quarter of 2011. In the first quarter, ECD's United Solar subsidiary shipped 11 megawatts of itssolarproducts.
As of September 30, 2011, the company held $130.2 million cash.
Back in May of this year the company said it was "implementing a strategic corporate restructuring that will include a reduction in its workforce of approximately 300 employees or 20 percent of the company’s current employees worldwide." The Board of Directors appointed Jay Knoll as Interim President, replacing former President and CEO Mark Morelli, who has resigned.
ECD has had a long history of technological promise but money-losing quarters. Their low-efficiency amorphous silicon solar product, combined with high manufacturing costs amidst a highly competitive global market with rising efficiencies and plunging costs, have put the firm into a tight spot.
A high cost structure and low conversion efficiency is a damning combination in today's market.
This is what a solar shakeout looks like. It's bad for employees and some firms, but good for the industry as a whole. And ECD won't be the last casualty.
ECD's stock was down 33 percent to $0.41 per share as of Wednesday morning.