ECD sees revenues slide, incurs major losses; CEO Morelli resigns as part of reorganization

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Energy Conversion Devices (ECD) is looking to put its third fiscal quarter of 2011 and its rather dreary financial results behind it. The company has decided upon a strategic corporate restructuring process that it hopes will lead it to better future financial results. The company saw its consolidated revenue slide 69% from Q2 2011 and 70% from its Q3 2010 results by only posting US$21.5 million in Q3 2011, pinpointing “industry-wide disruptions” in key European solar markets as the leading factor in its final Q3 revenue.

Net loss was calculated at US$243.2 million, including non-cash impairment charges of US$222.8 million. During Q3 2010, ECD reported a net loss of US$385 million, including a non-cash impairment charge of US$358 million. Impairment charges aside, ECD’s net loss for its Q3 was US$20.4 million, contrasted with a net loss of US$27 million in Q3 2010.

The company’s solar product and systems sales dropped 71% from Q3 2010 and 72% over Q2 2011, with Q3 2011 posting sales of US$18.7 million. Its consolidated gross margin was 16.3%, juxtaposed to 2% in Q3 2010 and 21.4% in Q2 2011. During this third quarter, ECD shipped 12MW of its Uni-Solar PV products while producing 26MW.

Taking into account its reported financials for fiscal Q3, ECD opined that it could possibly see better financial results once certain world solar markets find more stable ground. The company particularly pointed to Italy’s New Conto Energia IV law and its need to still be “digested and interpreted” along with the French government’s “need to clarify its tender process”. However, as the company needs more immediate results, ECD revealed its corporate restructuring plan.

“Industry-wide disruptions in key European markets impacted our business in the quarter as many of our projects and orders were postponed,” said Jay Knoll, interim president. “The abrupt shifts in European solar policies are having a profound impact on the outlook for the global solar industry and our business. Our restructuring actions are designed to align our business with these new realities in the solar industry. However, we remain confident in the growing adoption of solar technology.”

In response to the restructuring, ECD’s CEO and president Mark Morelli resigned. Morelli will not be the only displaced worker; ECD plans to reduce its workforce by 20%, which is equivalent to around 300 employees. Associates in all locations, in all departments and at all levels will be subject to the reorganization. While the board searches for a new permanent CEO, Jay Knoll will act as interim president. Knoll previously served as executive VP, general counsel and chief administrative officer.

“These actions will enable ECD to better meet the needs of the dynamic global solar market and will strengthen our ability to respond to this changed industry environment,” said Stephen Rabinowitz, Chairman of the ECD board of directors. “Our Board is confident that Jay Knoll and the other members of the senior management team, who have extensive experience in our business and industry, executive management and corporate restructuring, will provide strong leadership as we search for a permanent chief executive to lead the organization. We firmly believe that the restructuring, the continuing implementation of our technology roadmap and our strong cash balance position the company for success as a leader in flexible thin-film PV technology and its applications.”

One of the driving forces behind ECD’s workforce restructuring is the chance for it to expand its North American business, which will allow the company to focus on its two-step distribution model, with current and new channel partners, while additionally taking advantage of new opportunities in emerging markets. ECD noted that while it plans to expand its North American business, it would maintain its commitment to key European markets as they stabilize.

ECD plans to persist on its emphasis on the commercialization of its next-generation technologies, which includes its high frequency and nano-crystalline technologies. The company states that its roadmap outlines deliberate intentions for its flexible solar products to be able to compete more effectively with standard grid electricity, especially for rooftop applications.

The company made note that US$2 million was sustained in restructuring charges during Q3 and it expects an additional US$4 million to be incurred in Q4. However, with its proposed corporate restructuring, ECD aims to undergo an annualized savings of at least US$20 million, primarily in its manufacturing operations and corporate overhead.

Knoll added, “Besides our continuing opportunities in Europe, we anticipate future growth in solar demand will occur more rapidly in regions such as North America, where we have already gained meaningful traction with our unique solar products in large projects. We are also expanding our network of channel partners in the Americas through our Business Alliance Program and we are opening a manufacturing facility in Southern Ontario that will allow projects with our products to qualify for that region's excellent solar incentive program.  Our joint venture in Tianjin, China is starting to see shipment growth and we continue to win orders in emerging markets in the Middle East and Asia. Our new Open Solar initiative will seek to find new applications for our unique products and we are optimistic that it can drive future volume for our business.”

“The cornerstone of our refocused strategy is the execution of our technology roadmap. Our High Frequency product will be available later this year, and we have already started retrofitting equipment with our next-generation Nano-Crystalline technology at our Greenville campus. We are confident we are taking the right steps toward sustainable growth and profitability,” Knoll concluded.

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