AE looks to emerge from dark cloud

Advanced Energy Industries has attracted a lot of negative press this year because of staff layoffs as well as turnover in the executive suite.

The Fort Collins company remains optimistic about its future, but a dark cloud has formed over the solar industry that shows little sign of disappearing.

Chinese competition, skepticism in Congress and uncertainty about subsidies have made 2011 a bleak year for AE and other industry players.

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The recent release of a new product line helped offset some of the downbeat news, but it will take a lot more to turn attitudes around in a year in which AE stock lost as much as 25 percent of its value and sank to a 52-week low of $7.56. It was trading this week around $9.40.

New CEO Garry Rogerson said the “currently challenging environment in the end markets served by both the thin-films and solar business units” prompted the company to cut its U.S. workforce and move some of its manufacturing and research work to Shenzhen, China.

Those moves came amid an ongoing debate over the U.S. role in the solar panels manufacturing business. In late October, a group of U.S.-based solar-equipment manufacturers filed complaints with the Commerce Department, the International Trade Commission and the White House, claiming that China is illegally subsidizing renewable-energy products, taking unfair control of the solar industry.

A glut of Chinese photovoltaic solar panels has contributed to a slower-than-anticipated pace of solar products sales through much of the year, according to AE CFO Danny Herron.

The oversupply has triggered a 5 to 10 percent drop in prices – a good thing for solar products consumers – but not exactly welcome by makers.

Herron said the trend was a factor in AE’s need this summer to lower its reported revenue for the second quarter by $10 million. Despite the revision, Herron noted that the company still reported growth and outpaced competitors at the time.

The transition of manufacturing to China, he said, will allow AE to remain competitive and the restructuring will save the company about $6 million – and more in the future.

The new strategy meant much-publicized layoffs at AE’s Fort Collins headquarters, but the company has pledged to keep its engineering services and corporate offices in the city. Still, other closures and moves overseas may follow over the next 12 to 18 months, according to a corporate release.

Unsteady signals inside the U.S. are also affecting AE and other renewable companies.

The bankruptcy of the Silicon Valley solar-panel company, Solyndra, has raised questions over a U.S. Department of Energy loan guarantee program that backs the development of renewable enterprises.

The heightened scrutiny of the program could impact other government incentives. A DOE investment-tax credit program for developing renewable projects is set to expire at the end of 2011, and it could be denied a renewal as lawmakers question its effectiveness amid increased skepticism of government initiatives to promote alternative energy.

Typically, programs facing sunset provisions have both stimulated and stunted business prospects. The uncertain future forces some projects to rush toward completion before subsidy cuts at year’s end, while other developers in the early stages of planning may choose to wait rather than proceeding without government support.

A new CEO
While navigating the national and global markets, AE has also been working through internal shuffling.

The new CEO, Rogerson, was hired in August to replace Hans Betz, who was at the helm of Advanced Energy for six years before retiring.

Another hire, Gregg Patterson, was brought in as president of the solar energy business unit in August, but he abruptly resigned on Oct. 13 for “personal family reasons,” according to filings with U.S. Securities and Exchange Commission. Advanced Energy spokeswoman Cathy Kawakami declined to share additional details, though the SEC document notes that Patterson will receive a lump-sum separation payment of $90,000 and stay on in a transitional role through February.

Advanced Energy’s third-quarter earnings – released after the Business Report‘s deadline this week – were to include a charge related to the restructuring of approximately $2.5 to $3.5 million. The write-down was not expected when the company provided investor guidance in July.

Days after the late September restructuring announcement, Needham & Co., a national investment and asset management firm, downgraded Advanced Energy stock from “buy” to “hold.”

At the start of the year, Needham’s solar industry analyst Edwin Mok had listed Advanced Energy among the solar-power tech stocks he recommended in his annual forecast. But a Needham announcement cited “general weakness” in the solar industry in its revised take. AE stock dropped by 7.5 percent following the downgrade.

The company’s situation has also raised flags for Debra Fiakas, an analyst with Crystal Equity Research in New York. Fiakas anticipated the write-down for AE this past summer, noting in an online article that AE’s books showed the company saddled with a massive product inventory as solar development has moved ahead more slowly than expected.

In an interview with the Business Report this summer, Herron predicted that, despite the ups and downs, Advanced Energy will retain its place as one of the leading companies in the market for large and small inverter projects and thin-cell solar panel manufacturing. Development within the renewable field may not be moving forward as smoothly as executives and investors might like, but the field remains poised for expansion, he said.

“The industry should grow 50 percent a year,” Herron said, “and we should get our fair share of that.”

Whether that estimate is accurate or overly optimistic remains to be seen.

AE, Herron said, is moving solar energy toward “parity” – equal energy costs and pricing – with natural gas and other, more traditional energy providers.

It will need to, if it or anyone else in the solar game hopes for sunnier days.