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Sunday, July 30, 2006

Evergreen Solar investors sell the Second-Quarter 2006 Results news

Although Evergreen Solar (ESLR) revenues almost doubled and gross margins increased 16.6 percentage points sequentially from the first quarter 2006, financial wire stories (AP, Reuters) erroneously focused on year over year comparisons to the second quarter 2005. Second quarter 2006 results were actually in-line with revenue estimates, and ESLR had a smaller loss than expected. The EverQ joint venture factory remains on track for full production by the end of the third quarter. Investors have sold the stock down over 19% since the second quarter results were announced, after the market close, on Tuesday, July 25.

Investors may have focused on the following issues:

  • Capital expenditures will remain high for the next few years as ESLR aggressively invests in String Ribbon manufacturing capacity including the 50MWp EverQ2 expansion and a planned EverQ3 with joint venture partners Q-Cells (FRA:QCE) and Renewable Energy Corporation ASA, (OSL:REC).
  • Selling, General and Administrative expenses increased with the EverQ ramp but also included the effects of $1.8 million in stock based compensation.
  • Demand growth in the German solar photovoltaic market is “not the torrid pace of last year”. There is resistance to further price increases spurred by polysilicon constraints, but stable solar panel pricing should maintain demand growth.
  • “Hot” solar stocks have lost momentum and cooled since peaking in March 2006.

ESLR is accelerating thin ribbon and other process improvement efforts. Thin ribbon wafers will use 6 grams of polysilicon (perhaps as low as 5 grams) per watt, compared to the industry standard of 10-12 grams per watt and represents ESLR’s key competitive advantage in polycrystalline solar cells.The Marlboro facility has been fully converted to thin ribbon (less than 200 micron), although yields are not as good as the 300 micron process. Thin ribbon yield improvement efforts center on wafer cutting and metallization. At the PV Industry Forum, ESLR discussed a laser scribe technique instead of laser cutting, resulting in less cell edge damage. In order to improve the metallization process, ESLR expedited new screen printing equipment from a “German company” and swapped out a decal printing line at the Marlboro facility in early July to validate the process. Screen printed metal contacts should also improve thin ribbon cell efficiency to the 2006 target of 15%. It is my guess that ASYS GmbH is the likely the supplier of the screen printing equipment (ESLR did not mention the name of the vendor), since their solar screenprinters can handle wafers as thin as 100 micron, in-line with ESLR's wafer “thinning” technology roadmap.

ESLR will begin to transition EverQ to thin ribbon in the third quarter and complete the conversion in the fourth quarter. Plans for rolling out the screen printing metallization process were not disclosed. I do not know if this equipment is already in place at EverQ, but the new screen printers are certain to be used at EverQ2 if the trial at Marlboro is successful.

ESLR’s new Quad Ribbon furnaces have cranked out “thousands” of wafers albeit at lower yields than existing process. Quad ribbon is a simplified growth technique for growing four (4) edge to edge ribbons from a single furnace. Since the concept is sound, Quad ribbon efforts will now be focused on process improvement for mass production. ESLR believes Quad ribbon may be ready for deployment at EverQ3 in 2008.

ESLR management continues to deliver revenue growth and improving gross margins and has an excellent track record in developing and deploying process technology improvements, even at the expense of near term production from the Marlboro facility. In my opinion, ESLR management is making all the right decisions to grow Evergreen Solar faster than the dynamic, worldwide solar photovoltaic energy market for the next few years.

For a different take on ESLR, see this summary of a report form Alternative Energy Investing.

(Full disclosure: I own some shares of ESLR stock).


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