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Emcore considers asset sale

Having breached some of its loan covenants, the III-V component maker is pondering debt or equity financing options while cutting costs.

Emcore is considering raising finance through an equity sale, as the company struggles with tough market conditions and the costly development of its concentrated photovoltaic (CPV) systems.

The Albuquerque fiber-optic component and multi-junction solar cell maker was in breach of its Bank of America loan covenants in the last financial quarter, which ended March 31.

The bank has agreed to reset those covenants for later this year "“ albeit at the penalty of a higher interest rate, and a reduction in the available facility to $14 million from the original $25 million agreed last October.

Emcore has cut its costs massively over the past few months, slashing the workforce headcount by 30 percent since September 2008. CEO Hong Hou and predecessor Reuben Richards have each taken a 15 percent salary reduction.

But even those drastic measures have not been enough to halt a slide in cash assets on its balance sheet, which stood at $10.6 million on March 31, down $8 million from the figure six months before.

In the latest quarter, it posted an operating loss of nearly $26 million on sales of $43.3 million, and used $6.2 million of its Bank of America credit facility.

"We continue to pursue and evaluate a number of capital raising alternatives including debt or equity financing, joint-venture opportunities and the potential sale of certain assets," Hou told an investor call to discuss the latest financial results, adding:

"We expect to finalize a definitive agreement within this quarter."

One bright spot amid the financial gloom is Emcore s satellite solar business.

During the latest quarter, it agreed a $70 million supply deal that will begin shipment in the current quarter. The deal means that Emcore now supplies cells to three of the four major aerospace companies in the US, at a healthy profit margin.

Progress on the terrestrial solar side is not quite so advanced, although Emcore has received orders for three new small-scale concentrated photovoltaic (CPV) systems.

But the development of its third-generation CPV system, said to offer a module efficiency of 30 per cent, has been a costly exercise for Emcore.

Asked by Canaccord Adams analyst Jed Dorsheimer why the company didn t just shut down its CPV systems business to focus on the profitable line of solar cells instead, Hou indicated that pursuing the systems business would ultimately prove worthwhile:

"Our strategy is not forcing the deployment prematurely, but really to take our time to leverage the inverted metamorphic [cell] technology and the low cost of our third-generation system to develop a disruptive solution for utility-scale applications."

Hou added that progress on the development of IMM cells was going well, and that Emcore was ahead of competitors also developing the technology, which was invented at the US National Renewable Energy Laboratory (NREL).

He believes that IMM cell efficiencies of up to 43 percent will be achieved before the end of this year, ultimately increasing to 45 percent under high concentration.

• Emcore s share price fell 15 percent to $1.15 in early trading following the results announcement, valuing the company at around $90 million.

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