EMCORE (EMKR)

Emcore has racked up operational losses for 14 of the last 15 years – $340 million in losses offset by just $1 million in gains — in 1995. With its low margin sales, gigantic SG&A expenses and a history of overpromising and under-delivering -- last year the loss ballooned to $58 million – and the share count bloated to more than 70 million, right in step.

As of last filing the company had approximately $30 mil in cash while they were burning $15 million a quarter. Emcore has 3 units: Fiber optics, space solar, and solar energy. The first two businesses are flat and sell technology commodities that have proven consistently unprofitable, and wouldn’t be worth more than $2 a share. This leaves the company with their golden child: a Solar Energy business that Wall St. deems worthy of a fat market cap.^[1]

Emcore has been in the solar technology business for more than a decade. Its gallium arsenide cells have always produced electricity more efficiently than polysilicon, and it works with high concentrations of light. The drawbacks, however, doom it to a narrow niche – irrelevant in the current push for high-volume, mass-scale, low cost power production. The high cost of putting weight into orbit makes Gallium Arsenide technology cost effective in space, but it’s prohibitively expensive on earth – up to 100 times the cost of a polysilicon solar cell. It’s also really toxic, and doesn’t work at all under hazy conditions.^[1]

Recently, in a MOU with Pod Corp. in Canada, EMKR specifed that "EMCORE also has the right to substitute other solar technologies in portions of the projects.”

Why would Emcore not use its own products in the installation? How about because in that location, cloudy more than 50% of the time, gallium arsenide isn’t effective. That would be as if Coke had a contract with McDonalds and said at times we will supply Pepsi.

Emcore released PR for a “memorandum of understanding” regarding a multi-year agreement to supply 200 to 700 MW of solar power components to SunPeak Energy for unspecified future projects. Sounds promising, but SunPeak has no verifiable track record in the solar energy generation business. Here are a few cute tidbits about Emcore’s second largest solar customer.^[1]

- They were just incorporated — April 2007.

- Their COO was fired from his last job for a $47 million natural gas hedging “mistake”

- According to Dun and Bradstreet, the company has 4 employees and no verifiable credit history.

Furthermore, Emcore has announced two deals:

• Buying additional fiber assets from Intel (INTC), and
• A solar deal in China.

As to the former, Citron notes that this follow-on asset purchase requires zero cash, just some freshly minted stock, which Emcore has in good supply. Intel is not in the habit of giving away attractive, profitable businesses for free. We believe that as these integration and operational numbers begin to flow through Emcore’s financial statements, the gusher of red ink will intensify. No doubt Emcore’s quarter will be heralded by headlines of “Record Revenues”… but without sating its ravenous appetite for the public’s investment money, the losses generated by these “record revenues” are simply not sustainable.

As to the latter, aside from the slippery accountable-to-nobody future promises, the stated deal is for 60kW of solar technology. While no terms are announced, but by extrapolating from previously published numbers about Emcore’s backlog, it's possible to compute a value of 60kW at about (……drum roll…..) $18,000. …nothing more than a college science project.

With less than $25 million in shareholder equity and $36 million dollars of losses over the last 4 years, Emcore certainly seems to be relying heavily on the future success of a flimsy OTC company. Emcore went as far as to invest $18 million in World Water…and guess what happened – World Water committed to a competing solar technology.

WWAT recently completed a purchase of proprietary solar systems developer Entech. This is a direct competitor to Emcore’s concentrating solar cells. There is no explanation of why, if Emcore’s technology is so promising, WWAT would buy a competitor for cash and stock

WWAT’s CFO Larry Crawford was formerly EVP and CFO at Escala (ESCL.pk), wrecked when it was exposed to be part of a notorious Ponzi scheme fraud broken up by Spanish authorities.