Close to the edge: ECD suspends manufacturing indefinitely, postpones quarterly earnings call

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In another sign of trouble in the US domestic PV manufacturing sector, flexible thin-film silicon laminate maker Energy Conversion Devices has taken several restructuring actions, including the suspension of all manufacturing operations in what the company calls “an inventory control measure.”

Other moves taken by the Auburn Hills, MI-based firm include various cost reduction efforts, continued R&D on next-generation technologies, and the expansion of addressable markets. In addition, ECD management has started discussions with representatives of certain holders of the company's outstanding Senior Convertible Notes due 2013. As a result of the actions, it has postponed the quarterly financial conference call until further notice.

The temporary shutdown of production facilities will result in the furloughing of approximately 400 employees across the company’s three factory locations in Michigan, Baja California, Mexico, and Ontario, Canada. The company said it expects to resume manufacturing as soon as possible once the existing inventory has been sold and market conditions warrant, with a return to normal production levels possible within 60 days.

ECD said will continue to serve its customers through its direct sales force and global network of solar integrators and building materials suppliers.

The company did issue preliminary results for Q1 FY2012, stating that it expects to report total revenue of approximately $22 million. This compares to consolidated revenue of $65 million in the Q1 FY2011.

ECD held $130.2 million of cash, cash equivalents, restricted cash, and short-term investments, a reduction of $10.5 million compared to the previous quarter.

During the just-completed quarter, ECD's United Solar subsidiary shipped 11 MW of thin-film laminates in the face of sharp price declines and excess module supply across the industry. In Q1 2011, the company shipped 30.5MW.

The company’s strategic corporate restructuring began in May, with every aspect of its strategy being reassessed in light of the near-term disruptions in the solar industry.

To reduce cost and manage cash, ECD took personnel and other actions in June with an estimated annualized cash savings of $20 million. In addition, the company said it will further reduce its workforce by approximately 500 full-time associates by the end of calendar 2011.

The company is starting to get traction in its efforts to enter new geographic markets, having recently completed shipments to Brazil, South Korea, India, the Caribbean, and China. Solar sales to customers outside of Europe and North America now account for about 40% of total shipments in the quarter, compared to 4% in the prior year's first quarter.

Consistent with the technology roadmap previously announced by the company, ECD said it is committed to enhancing its core thin-film solar technology by commercializing its patented, higher-efficiency Nano-Crystalline technology. Upgrades to existing capital equipment are under way at its Greenville, MI, plant, and the retrofitted line is expected to begin pre-production testing and optimization in mid-2012.

“These operating results highlight the challenges facing us and the solar industry today,” said Jay Knoll, ECD's interim president. “With reductions in incentives in our core European markets and a volatile credit market, solar projects are having tremendous difficulty closing. These factors combined with a flood of cheap modules from foreign manufacturers have created an environment where very few projects are getting completed without self-financing and steep discounts. The economics of this environment require us to rethink our approach to the sales process and rationalize our cost structure, both of which are under way.”

Separately, ECD's Ovonic Battery Company (OBC) subsidiary generated $2.3 million in the quarter in combined royalties and license fees from its proprietary nickel-metal-hydride rechargeable battery technology. ECD announced in July that it intended to divest OBC in a closed-bid auction and is proceeding with this sales process. 

The company believes that a successful repositioning of its United Solar business will require refinancing or restructuring of its outstanding Senior Convertible Notes due 2013. ECD intends to invest the proceeds from the sale of OBC in its United Solar business to support funding of its technology roadmap and Open Solar initiatives. 

ECD said it is considering a range of strategies to attract additional investment that may be required and has retained the financial advisory firm of AlixPartners to help it evaluate such strategies.

In connection with the foregoing, the company has begun discussions with representatives of an informal group of holders of ECD's outstanding Senior Convertible Notes due 2013, regarding its repositioning efforts to explore the group's interest in restructuring the notes.

In light of these restructuring actions and the ongoing strategic discussions referenced above, the company said it has postponed its conference call previously scheduled to take place November 9. 

ECD will not file its quarterly report on Form 10-Q for the fiscal period ended September 30 by the deadline for such filing and intends to file a Form 12b-25 with the SEC, although it does expect to file its quarterly report on Form 10-Q within the grace period prescribed by Rule 12b-25 under the Securities Exchange Act of 1934, as amended.


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