Thin film star: Energy Conversion grabs spotlight

From Times staff writer Edward Silver:

Energy Conversion Devices Inc. finally proved itself. A cousin of sorts to solar phenom First Solar Inc., the firm conspicuously sat out last year’s stunning rally in the sector’s shares.

But today was the day for earnings show and tell, and the believers were vindicated. Solar product sales rose 193% over the year-earlier quarter, and the company posted a profit of 17 cents a share. Analysts, on average, had expected break-even. The result: ENER stock soared $15.10 to $49.91, or 43%, for Nasdaq’s biggest gain.

Energy Conversion fashions solar power modules based on “thin film” silicon that can be designed into roofs for big-box stores, airplane hangars and other commercial buildings. With the financial success of First Solar, investors have taken a shine to the thin-film concept.

FSLR, however, uses cadmium telluride to convert the sun’s rays into electric power. Both formulas bypass the supply bottleneck and price inflation that bedevil makers of conventional, slab-style silicon solar cells, and that’s key. Part of Energy Conversion’s edge is also the lightness and flexibility of its wares, making them a convenient and cost-effective feature in construction.

With its history rooted in R&D, the company has struggled to get its act together as an efficient manufacturer and sales machine. Now, tributes are being paid to the new chief executive, Mark Morelli, for making the operation jell.

Energy Conversion’s target market is also jelling, and in the quarter that just ended, the company was firing on all cylinders. Instead of the usual gradual slide, the company was able to hold its selling prices firm. Gross margin tells the tale. It blossomed from 19.2% to 30.7% in just one quarter. Analysts had expected an improvement to about 25%.

Management told Wall Street that those pleasing margins would persist. Naturally, the surprise numbers are causing analysts to recalculate their models for the company and most likely for the broader thin-film industry as well.

Rob Stone of Cowen & Co. hadn’t had time to crunch the data but indicated that his forecasts would rise. “Each point of gross margin upside is worth about 10 cents of EPS for the year,” he said.

We’re talking a lot of upside.

Money & Co. blogger Tom Petruno is on vacation this week. He returns May 12.