News Article

Emcore Stock Hits Four-year High

Analyst raises Emcore's target price by 33% as the fiber-optic market bounces back to form and the commercial production of triple-junction solar cells for terrestrial applications begins in earnest.

You wouldn t say that the good times are rolling again at Emcore - not while it is still making a net loss - but for investors in the New Jersey company the signs are good. While the share prices of technology companies in general, and chip manufacturers in particular, have strengthened in recent months, Emcore has outperformed most in the field to register a four-year high.



Back in January 2002 Emcore s stock value plunged below the $10 mark, and in October 2004 it was still bumping along at well under $2. But since then, the only way has been up for the chip, module and materials supplier. As Compound Semiconductor went to press it was close to pushing back above $10 in what could be seen as evidence of an impending boom across all sectors of the compound semiconductor business.



That s because Emcore is one of the few companies that straddles all the major III-V areas, and is something of a barometer for the industry. It sells wafers for RF applications, makes laser chips and modules for fiber-optic communications, triple-junction solar cells, and LEDs through Gelcore.

In the four years since the $10 mark was last breached, Emcore has of course undergone some major reconstructive surgery. Most notable, from a compound semiconductor point of view, was the sale of its Turbodisc MOCVD equipment division - the very heart of the company - to Veeco Instruments back in late 2003.

John Lau, an analyst from investment house Jefferies and Company who covers Emcore s stock, now sees a big upside opportunity for investors. After the firm s positive results for the December quarter, where it beat revenue guidance estimates by nearly $1 million, and an upbeat outlook, Lau revised his target price for the stock from $9 to $12. And it wasn t just Emcore s strong guidance for the current quarter that prompted this. For the first time it now appears that triple-junction solar cells based on III-V materials are set for serious commercial application on Earth. Until now, the application of those 36% efficiency cells has been stuck firmly in space, considered way too expensive for terrestrial consumption.

However, that all looks set to change: "Emcore announced that they have received their first order [for terrestrial solar-cell products] and have transferred it into production for initial revenue this quarter," said Lau. Not only is this one-quarter ahead of schedule, Emcore s CEO Reuben Richards says that three different customers are already lined up to make solar panels featuring Emcore s multi-junction cells. One is in Spain and two are in Asia, including one in Japan. Already with a $44 million order backlog for its overall solar business, Emcore is expected to reveal more details of these terrestrial developments in its next quarterly update.

Mark O Neill, president of the Texan solar-system specialist Entech Solar, says that engineers have made great strides in recent years to solve the optical and thermal problems associated with concentrator systems, so a multi-junction III-V system is now much more cost-effective than one based on polycrystalline silicon - provided that it can be made in volume.

O Neill estimates that systems featuring multi-junction concentrator cells could operate at an output of $3/W - a figure Lau concurs with - compared with around $6-7/W for polysilicon cells. With engineering issues now solved, Entech says that the only thing holding up wider deployment of the technology is to bring in some financing to support volume production of multi-junction solar systems. That may well be a problem restricted to the US, which has lagged behind the rest of the world in photovoltaics. But with positive noises emanating from the Bush administration on the solar energy front, even the US s political and economic pendulum could be set to swing in Emcore s favor.

Richards says that Emcore is ready to meet photovoltaic demand by adding manufacturing capacity for both front- and back-end processes. Capacity is for now limited mainly by a relative lack of back-end equipment, while additional epitaxy machines are expected to be installed as production begins to ramp up "in earnest". Within two years Richards expects to have 40% efficient solar cells available that could push the conversion cost as low as $1.50/W. At that price the potential for terrestrial applications would be enormous - although don t expect to see GaAs-based systems on domestic rooftops just yet, as the bulky concentrators are suitable only for supplying the electrical grid, or at a push helping to top up the power requirements of a Wal-Mart store, perhaps.

Richards is in buoyant mood: "At the moment the company is hitting on all cylinders." Lau expects the strong growth to continue, reaching around $225 million by 2007. Unsurprisingly, he s rating the company as a "buy".

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