Differing Opinions on EMCORE Corporation

EMCORE Corporation (EMKR) stock lost more than 60% of its value in two months. It lost an additional 33% after Mr. Andrew Left published his bearish report on EMKR on March 18, 2008.

As a result, EMKR is the only stock in solar sector which did not join the recent bullish run. I thought EMKR's price quite attractive at this price level. Of course, a low price is not the reason to buy a stock. It may go lower, much lower

Right now, there are two groups of investors and each of them wants to make money out of EMKR's stock. That is, a "short" group and a "long" group.

In the following, I will list the opinions from the two groups and then I will give my take:

CPV Technology and Its Cost

1. Is CPV technology mature enough to be used in large scale applications? If not, how long it make take for that purpose?

Andrew Left (March 18, 2008):

It might well take 10-20 years to work out all the bugs in large scale deployment.

From CVP Conference (April 1-3 2008):

Companies with an estimated $600 Billion USD in revenues last year seem poised to unveil the results of 2 years of harsh testing of this new type of PV cell.

In 2006, Spain Institute for Concentrated Photovoltaics commissioned a number of leading edge companies to supply and build 3MW of electric producing solar installations. Companies selected to supply the new triple junction PV cell component included Emcore USA and Spectrolab (a subsidiary of Boeing) of the USA. A consortium of CPV providers has built the installation including ISFOC, Palo Alto Research Centre, IES, UPM, Isofoton, Concentrix, Emcore, Azur Solar, Solfocus, Spectrolab, Arima Eco, Concentracion Solar La Mancha, Sol3g.

2. Is CPV cost competitive compared with other two technologies - the cost of solar cells and the cost to build a solar cell manufacture facility?

Andrew Left:

It’s prohibitively expensive on earth – up to 100 times the cost of a poly-silicon solar cell.

Greg Watson, CEO of GGE:

PV module: currently selling on average of $3.85 per watt.

Suncube will cost about US$1500 which is equivalent to about $3/W if compared with conventional solar panels. That's a competitive price.

The Suncube product seems pretty straightforward to me and I think in high volume it should be a lot cheaper. If they get it down to $500 they would hit $1/W, which would be a nice target and position them well.

Cost to build a 1GW silicon/thin film factory. Approx US$1 billion. Cost to build a 1GW Emcore 3J factory. Approx US$100 million.

3. Is EMKR’s CPV technology more competitive than others?

Andrew Left:

For CPV solar cell technology, there are 10 or more competitors to Spectralab and Emcore that have demonstrated 30% to 35% efficient mixed material cells, and a substantial number more that are in R&D.

EMKR:

It took our 3Js around 8 years to almost totally dominate the satellite PV business. We expect it to take about the same time for 3Js to totally dominate the terrestrial PV business.

Market and Revenue Projection

Andrew Left:

Emcore has admitted that it has received only $500,000 from Green and Gold. Citron believes that whatever it has received is the only money it will ever see from this fantasy. GGE has no money to pay for its so called $78 million order.

Greg Watson, CEO of GGE:

The bottom line is the SunCube is very real, our business is very real as is our ability to pay for Emcore's cells. I should add that each and every SCIG member has visited Emcore and has presented their business case for building solar farms based on the SunCube and Emcore's cells.

Under Australian consumer affairs laws, GGE are liable if those measurements are not accurate.

GGE has signed contracts with 6 Australian and other international companies (the SunCube International Group [SCIG]) to buy 400MWs worth of Emcore receivers and other SunCube components every year for the next 10 years. That business is worth approx US$350m in sales to GGE. Emcore's part is worth approx US$160m per year. The Emcore receivers we have on order will be taken over the preceding 12 months when Emcore and GGE finally qualify the receiver. This qualification is occurring now.

We believe Emcore will complete the current outstanding orders by mid 2009.

GGE has launched the SunCube in Australia, India and will do so in the EU 1-2 April 2008 at the CPV Summit Conference.

My Take

It is hard to have the final say over who to believe. Only time will tell. Right now I am more on the long side. First, the stock price is very attractive after 60% haircut; second, the company is real. It bought Intel’s (INTC) fiber business last year and its solar technology is currently used in sattelite applications. No one denies it. CPV is twice as efficient as other technologies. Mr. Andrew Left also agrees with it. I am in favor of leading technology and support EMKR’s effort to make it in large scale applications. I sincerely hope that EMKR can fulfill its promise to turn the company profitable as scheduled.

There are some important developments for the company in the next few days. One is the CPV conference and another is April 10’s analysts’ meeting. I hope to see some positive events.

Disclosure: I have long position in my Roth IRA account.

Comments

[Warren Buffet:]

The "difference" of opinion is that Andre Left [who's being investigated by the sEC/ EMCORE is not] doesn't not give full and detailed explanations of his bearish vies. He has [as EMKR as stated] give "misleading" data and information in his blog.

Just look at how detailed Emocre has been on their business.

seekingalpha.com/artic...

Fact is orders continue to come in for EMKR products, the cloud of uncertainty that Citron painted of GGE I believe is false, sine the gov't of Australia has ordered from them, lending credibility.

Left's opinion, which is just that an opinion and his blog refer to other past companies...that have declined in stock price. My question is, of those companies, how many of them had directors buying millions of dollars of stock on the open market???

That speaks for itself!

2008 Apr 02 11:21 AM

[Pj568:]

No one mentioned the P word (profit) ........... Oh, there are none.

2008 Apr 02 12:15 PM

[Slingshot:]

Your take - you said - "the stock price is very attractive after 60% haircut; second, the company is real. It bought Intel’s (INTC) fiber business last year and its solar technology is currently used in sattelite applications. No one denies it."
You have to separate the 2 businesses - old and new. Then value each side separately. you will realize that the old business is very to aerospace multiples or optical equip - like optium. 1x sales; 10x EBITDA. The high value they received was attributed to EMKR CPV dream. And it has recently been exposed that it is in fact a dream and nowhere near reality. Therefore, the stock was cut, and went back down to values consistent with its comparable peers in its "real" businesses, as you called them.

2008 Apr 03 01:35 AM

[REBEL:]

The bottom is falling out of the US economy and some of the emerging markets are failing, too. China is struggling just to keep their populace content so they won't revolt. Government revenues willl fall as hundreds of thousands lose their jobs. Even the best stocks will tank when investors are worried about how to feed the family. Even if EMKR is fabulous, an investor better plan on holding it 10 years to make a real profit.

2008 Apr 03 03:03 AM

[Sherlock Ho...:]

Fact are facts, Watson, and after all you are only a general practitioner with very little experience and mediocre qualifications.

Your morals don't improve, Watson. You have added fibbing to your other vices.

2008 Apr 03 10:48 PM

[Sherlock Ho...:]

The wages of sin, Watson - the wages of sin!

2008 Apr 03 10:56 PM

[Ames Tiedeman:]

EMKR is a winner. Watch, learn, remember.

2008 May 01 05:12 PM