EMCORE Milks the Solar Cow on Utility-Scale Farms

• The Company: EMCORE Corp., a provider of semiconductor-based components and subsystems.
• The Filing: FORM 10-Q filed with the SEC on August 11, 2008.
• The Finding: On August 5, EMCORE Corp. announced two purchase agreements, with a total value of approximately $40 million, for delivery of its semiconductor-based, multi-junction solar cells. The products will be incorporated into concentrating photovoltaics (CPV) systems developed for commercial rooftop installations as well as utility-scale solar farms, with a particular focus on the California market. Management believes that the award of these contracts further affirms EMCORE’s position as the leading supplier of concentrator photovoltaic arrays in the emerging CPV components and systems business.

The Upshot: Although an established science for more than 30 years, CPV is the newest technology to enter the solar sector. A CPV system converts light energy into electrical energy in the same way that conventional photovoltaic technology does. The addition of an optical system, however, concentrates a larger area of sunlight onto each cell, which allows substitution of cost-effective materials such as lenses and mirrors for the more costly semiconductor PV cell material. Other potential advantages over standard (crystalline silicon-based) panel arrays include potential solar cell efficiencies greater than 40 percent and a lower cost/watt to operate.

Emcore has failed to capitalize on recent silicon shortages. Continued scalability testing and performance issues in diffuse light (cloudy days) have limited wider market acceptance of the technology.

Of additional concern, a failure by management to properly disclose that announced orders are cancelable at any time. The company said in its third-quarter 10-Q filing that Australian customer Green & Gold Energy was engaged in negotiations relating to the sale of its business and as a result, could not commit to making any further purchases under its approximately $79 million of CPV-related purchase orders. EMCORE is still on the hook for $135 million in contractual obligations, which come due between 2009 and 2010, for raw material purchases.

The Question: In the current risk-adverse climate, can CPV systems developers compete against other solar segments, such as thin-film makers and silicon wafer producers, for scarce capital financing?