May 11, 2009 / 11:23 AM / 10 years ago

UPDATE 3-Energy Conversion Q3 profit falls sharply, stock dips

* Q3 shr $0.03 vs $0.17 last year, rev down 6 pct

* Co declines to provide Q4 outlook, cites poor visibility

* Says ASPs might decline further

* Shares fall as much as 8 pct (Recasts, adds conf call details, updates share movement)

By Adveith Nair

BANGALORE, May 11 (Reuters) - Energy Conversion Devices Inc ENER.O on Monday reported a 81 percent drop in third-quarter profit due to weak demand for solar power in the United States, and the solar company declined to provide outlook for the fourth quarter, citing poor visibility.

Skyrocketing demand for solar power was a bright spot in the global economy last year until a pullback in solar subsidies in Spain and frozen credit markets dried up access to project financing and choked off demand.

ECD makes lightweight, flexible solar laminates for rooftops and buildings. The so-called thin film solar products are made from amorphous silicon and, unlike traditional solar panels, do not rely on costly crystalline silicon as their primary raw material.

“The global market continues to be difficult, with the biggest challenge being the sufficiency of project financing and our customers’ continued access to capital,” Chief Executive Mark Morelli said in a statement.

On a conference call with analysts, Morelli said the company had lower-than-anticipated product sales and higher-than-expected inventory levels at the end of the quarter. Customer access to project financing remained tight and a number of projects were delayed, Morelli added.

“These trends are continuing hampering our visibility into timing of sales. As a result, we will not provide guidance for the fourth quarter,” Morelli said. He, however, said production will range from the high teens to about 20 megawatt (MW) during the fourth quarter.

Raymond James analyst Pavel Molchanov said the fact that the company did not offer any guidance suggested visibility remained bad.

“Their news last week further adds to the perception that demand is very, very poor,” he said, adding that revenue estimates for the June quarter and for fiscal 2010 will need to come down ‘quite considerably’.

Last week, Rochester Hills, Michigan-based ECD said it had begun a temporary production furlough to bring supplies in line with weak demand and save $6 million in the June quarter.

Analysts are currently looking for revenue of $76.1 million for the fourth quarter, and $487.6 million for 2010, according to Reuters Estimates.

LOWER EXPENSES HELP RESULTS

Net income for the fiscal third quarter ended March 31, 2009 was $1.3 million, or 3 cents per share, compared with $7 million, or 17 cents per share, a year ago. Wall Street analysts, on average, had been expecting earnings of a penny per share, before items. [ID:nWNAB7152]

Results for the latest quarter include preproduction costs of 3 cents a share and restructuring costs of less than a cent a share, the company said.

Raymond James’ Molchanov said lower selling, general and administrative (SG&A) expenses helped results.

For the latest third quarter, the company reported SG&A of $12.3 million. For the second quarter ended December 31, 2009, operating, general and administrative expenses came in at $17.2 million.

“The last time this company had lower SG&A was in the quarter ended September 2007, 18 months ago. They reduced their cost structure quite a bit and that is certainly a good sign that management is taking cost reduction seriously in the current environment,” Molchanov said.

Gross margins on solar product sales for the latest third quarter was 29.2 percent, down slightly from 30.7 percent a year ago.

However, Molchanov said margins were still pretty high, and there was not much room for them to improve.

“The reality is that average selling prices are coming down across the board in the industry. So it would be very unlikely for any of these companies or practically anybody in the solar space to see a lot of margin improvement,” the analyst said.

While ECD declined to disclose its average selling prices, the company said prices came down by low single-digits in the quarter.

On the conference call, the company said though pricing had remained relatively steady due to the level of polycrystalline and the level of pricing in the marketplace, it anticipates further declines in ASPs going forward.

Shares of the company were trading down 76 cents at $16.25 Monday morning on Nasdaq. The stock had earlier fallen as much as 8 percent to a low of $15.68.

The stock is so far down as much as 80 percent since its June 2008 year-high of $83.33, mirroring other stocks in the space which have also been in freefall. (Editing by Dinesh Nair, Jarshad Kakkrakandy)

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