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Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: 7bit X-From: "IssueAlert" <IssueAlert@scientech.com< X-To: X-cc: X-bcc: X-Folder: \Drew_Fossum_Dec2000_June2001_1\Notes Folders\Notes inbox X-Origin: FOSSUM-D X-FileName: dfossum.nsf http://www.consultrci.com ********************************************************************* Sponsored By: Energy Exchanges Online - Scottsdale - December 4-6 B2B e-commerce has revolutionized commodity trading, the A&D process and procurement within the energy industry. With heavyweight keynotes and in-depth panel discussions this is the first event to bring the major energy companies, net markets, venture capitalists, regulatory bodies, investment banks and analysts together to thrash out why its not business as usual but business online. For more information please visit www.eyeforenergy.com/xonline ********************************************************************* =============================================================== SCIENTECH IssueAlert, November 6, 2000 Evergreen Solar, Inc. Issues Successful IPO; Do Alternative Fuels Increase Stock Value? By: Will McNamara, Director, Electric Industry Analysis =============================================================== Waltham, Mass.-based Evergreen Solar, Inc. (Nasdaq: ESLR) issued an initial public offering of 3,000,000 shares of its common stock at the IPO price of $14 per share. Evergreen Solar develops, manufactures and markets solar power cells, panels and systems throughout the world. The IPO reportedly will raise $42 million in gross proceeds to support further expansion and development by Evergreen Solar. ANALYSIS: Here's yet another case of a relatively unknown company going public based on grand marketing ideas rather than a solid track record. Yet, surprisingly, the IPO has opened strong. Last Thursday (11/2), Evergreen Solar's stock closed 36 percent above its offering price, at $19.00. At the close of the market on Friday, the stock price had dropped to $17 ?, but still represented a strong showing while other IPOs last week (both energy and non-energy) have crashed and burned (Excelergy, for example). What makes the strong IPO even more startling is Evergreen Solar's less-than-stellar financial history. Since its inception in 1994, Evergreen has incurred significant net losses ($2.5 million in 1998, $2.9 million in 1999 and $1.9 million for the first six months of 2000). As a result of ongoing operating losses, Evergreen has a cumulative net loss of $12.3 million as of June 30, 2000, and has stated clearly that it "expects to incur substantial losses for the foreseeable future, and may never become profitable." In 1999, product sales only accounted for 8.2 percent of total revenue, with the rest coming from research grants. Granted, Evergreen is still in start-up mode with regard to a large-scale production of its business, but still it seems very odd to see such a strong IPO from a company that is really just getting started. So, what gives? Doesn't it seem logical that a company should demonstrate financial stability before it goes public? And that if it's not financially stable, the stock price should go down and not up? I'll provide one theory, but first let's establish exactly what Evergreen Solar is all about. The company's sales since 1997 have been composed primarily of solar panels. Evergreen plans to begin large-scale manufacturing of its solar power products in a new manufacturing facility in early 2001, a growth strategy that the IPO proceeds obviously would support. Evergreen's principal objective is to become a leading producer of high-quality solar power products, primarily for the on-grid market and the off-grid rural electrification market. What makes the company unique, according to Evergreen, is its String Ribbon technology, which reportedly avoids the slicing of solid block of silicon, which is required for most solar-power technologies. Evergreen's String Ribbon technology reportedly cuts the use of silicon in half, which reduces manufacturing costs without impairing product reliability. In December 1999, Evergreen Solar formed a five-year strategic distribution and marketing contract with Kawasaki for the Japanese market. Essentially, Evergreen has agreed to sell its solar power products in Japan exclusively through Kawasaki. In fact, the partnership constitutes the bulk of Evergreen's business. In the first six months of 2000, sales to Kawasaki accounted for approximately 70 percent of Evergreen's product revenues. After the IPO, Kawasaki will have an 8.4 percent stake in Evergreen. The risks associated with Evergreen's business are formidable, and the company admits that its stock price could fall substantially if quarterly revenue continues to be disappointing. Beyond that, Evergreen's success hinges on the potential growth of the solar power market, which is still in question. Evergreen contends that distributed generation technologies (point-of-use electric generation that either supplements or bypasses the electric grid) will be one of the most promising areas for growth in the global electric power market, and within DG technologies solar power has experienced significant growth over the last 20 years. In addition, solar power produces zero emissions, and may grow as a result of renewable energy requirements in various states. This may be true, but at the same time there are other competing DG technologies such as fuel cells, microturbines and wind power, which may slow the grow of solar power. Plus, there's little proof that Evergreen's String Ribbon technology will produce significant cost-savings to make it a standout technology. There are other risks as well, not the least of which is the exclusive relationship with Kawasaki. If the relationship goes sour, this could dramatically diminish Evergreen's potential revenues and market share. So, with this market profile, the question of why Evergreen had such a strong IPO still remains. I think the answer is that Evergreen's business focus is exclusively placed on alternative power. At a time when e-commerce stocks are under growing pressure to demonstrate financial success, stocks based on new technologies in general and alternative fuels in particular are being received particularly well by investors. There is arguably a general perception within the financial community that distributed generation technologies will gain an increasingly strong lock on the energy market in the next two years. Commercial and industrial customers want various options that can reduce their dependence on the grid. With regard to alternative fuels and distributed generation technologies, investors may believe that either utilities or large end-users will begin to develop these technologies as deregulation continues. Remember Active Power (Nasdaq: ACPW), whose shares soared on expectations that flywheel energy storage devices will be a leading technology. On its opening day in August, Active Power stock increased by 210 percent, from the opening price of $17 to $51 1/8. Although Active Power's stock price has bounced around since then, it still closed at $30 on Nov. 3, a very respectable level and approximately 111 percent above its original price. Another example is Capstone Turbine (Nasdaq: CPST), which is currently trading at $45 3/8 after opening at $16 in June. Along with alternative fuels, venture capitalists also appear to be responding to technology startups that plan to provide software and related services to energy companies. Then there is the growing market of exchanges, such as Pantellos, Enporion, Enermetrix and the like, which could be the next big round of successful IPOs. The long-term question is how long such stocks can continue to open so successfully, without having a strong financial performance to support the opening. E-commerce stocks started opening strong about a year or two ago, but began to take a downward decline this spring as investors demanded to "see the money." Evergreen Solar and similar stocks may be following a similar path, which makes time a critical factor. The bottom line is that it is a real race for a company like Evergreen Solar to secure as much funding as it can and grow its business while the financial climate remains strong. =============================================================== Hear JON BROCK, Director of Strategic and Competitive Intelligence, SCIENTECH/RCI, address the ramifications of legislative and regulatory requirements on your Information Technology Infrastructure at the McGraw-Hill/EEI/AGA Information Technology Expo in Phoenix Arizona, November 5-7, 2000. =============================================================== SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let us know if we can help you with in-depth analyses or any other SCIENTECH information products. If you would like to refer a colleague to receive our free, daily IssueAlerts, please reply to this email and include their full name and email address or register directly at: http://www.consultrci.com/web/infostore.nsf/Products/IssueAlert Sincerely, Will McNamara Director, Electric Industry Analysis wmcnamara@scientech.com =============================================================== Feedback regarding SCIENTECH's IssueAlert should be sent to wmcnamara@scientech.com =============================================================== SCIENTECH's IssueAlerts are compiled based on independent analysis by SCIENTECH consultants. The opinions expressed in SCIENTECH's IssueAlerts are not intended to predict financial performance of companies discussed or to be the basis for investment decisions of any kind. SCIENTECH's sole purpose in publishing its IssueAlerts is to offer an independent perspective regarding the key events occurring in the energy industry, based on its long-standing reputation as an expert on energy and telecommunications issues. Copyright 2000. SCIENTECH, Inc. If you do not wish to receive any further IssueAlerts from SCIENTECH, please reply to this message and in the body of the email type "remove."
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