Citron Research shines some daylight on Emcore’s solar business.


“Business … that’s easily defined: It’s other people’s money”
— Peter Drucker 

It is difficult to write any financial story this week without referring to the complete debacle at Bear Stearns.  While there are many lessons here, the pre-eminent one is the corruption of judgment induced by OPM (Other People’s Money).  With the huge fees and cash bonuses generated by indiscriminate Wall Street dealmaking, the most fundamental principle has gone out the window:  “When you make a loan, lend it out as if you were risking your own money, and when you recommend a stock to the public, act as if your mother was asking for investment advice.”

Thinking about the sad state of OPM leads us to our newest entry to the Citron blog…Emcore Corp.  (NASDAQ:EMKR)  which sports a market cap of nearly $700 million, after one of the worst operating histories Citron can recall.  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, you have to wonder if the company has forgotten all about the principle of making a profit – last year the loss ballooned to $58 million – and the share count bloated to more than 70 million, right in step.  OPM baby.

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.

But Emcore’s solar business is built on a foundation of illusions.  Citron will now show that Emcore has deceived the public about the quality of their customers and their customer’s ability to fulfill these alleged orders.

Shining the Light on Emcore’s Solar Business

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.

In contrast to the major polysilicon solar companies, who have earned market value by racking up huge multi-year supply agreements with credible counterparties, Emcore has strung together a group of sham deals to make it appear to be a player in the terrestrial solar business.  Citron is incredulous that Wall Street’s analysts have swallowed this story without doing any fact-checking whatsoever.  Instead the analysts have been fawning on the prospects of Emcore’s supposed backlog and deal flow. 

But what do you expect – it’s the same group of analysts whose consensus earnings estimates underestimated EMKR’s losses in the last two quarters by 1000% — a miss of over $28 million in six months — and yet wouldn’t dream of a downgrade.

1)  Green and Gold Energy

As you can see in Jefferies’ analyst John Lau’s notes last week, Emcore is banking heavily on Green and Gold Energy as a critical part of Emcore’s backlog:

This order was restated in Emcore’s 10-K in which it states it ended FY 2007 with $142 million solar backlog of which “terrestrial” represents $89 million. 

Then in February, the company announced an additional $39m order from Green and Gold, and restated its $86m terrestrial solar backlogged orders. 

So that’s $65 million ($78m according to Green and Gold’s PR), or appx 75% (or 86%) of Emcore’s backlog for terrestrial solar products.  The question is whether there is any prospect whatsoever of Green and Gold being able to pay for this order.

Citron has done considerable research on Green and Gold and believes the company does not have the money or capacity to fulfill the purchase commitments reflected in these press releases.

Consider the following:

The CEO and founder of Green and Gold Energy is Gregory Watson.  Before Green and Gold, Mr. Watson promoted perpetual motion machines.

But that turned out to be a bust

Mr. Watson then moved on to the “SunBall”.  He then abandoned those claims in favor of the SunCube – promised for future sale to the public in 2007.  But he retreated from those claims, and now claims giant solar farms will be built with SunCube’s, built with Emcore’s solar cells. …only one problem. His company states that it doesn’t have a yet have plant to produce its SunCube, and doesn’t have the financing for the plant, but it does have an “intention” to build it!

Beyond the lack of production capacity, the SunCube itself comes with a fair share of controversy.  Observers at the much promoted unveiling of the SunCube prototype at an Adelaide park last month commented that:

  1. The SunCube didn’t have any heavy electrical wires running from the unit
  2. There was no electrical load attached, nor any meter to measure how much electricity the unit was producing, if any.
  3. The unit wobbled noticeably in a light breeze – enough to take it out of solar alignment.[email protected]/2270388475/

Its “exclusive distributor”, Zolar Distributors (see banner in above photo) has a website but no address or phone number.

Emcore has admitted that it has received only $500,000 from Green and Gold.  Citron believes that whatever it has received is the only money it will ever see from this fantasy, and it is the height of corporate malfeasance to use any of the $65m or $78m claimed for future sales to Green and Gold as part of its revenue guidance.   They’ve had over six months to do their own due diligence, but they persist in insisting this customer is the anchor of their backlog.  Analysts should wake up.

For some fun reading, here is some of the solar tech community’s commentary on Emcore’s future largest customer.

SunPeak Energy

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.
  2. Their COO was fired from his last job for a $47 million natural gas hedging “mistake”
  3. According to Dun and Bradstreet, the company has 4 employees and no verifiable credit history.

Citron believes that this press release was just that – a press release. 

Spanish Contracts

In November, Emcore announced $18m component contract with ISFOC, the “Institute of Concentration Photovoltaics Systems”.

This very small (850Kw) is a “turnkey” project meaning most of Emcore’s revenue will not come from solar cells, but rather systems integration work.  This low margin systems integration work is not what Wall St. was promised.

Pod Corp. in Sault St. Marie, Canada  It’s a Memorandum of Understanding only, not a firm contract and it contains this strange language:

“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.

World Water & Solar Technologies (WWAT.ob)

This customer is our favorite.  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

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


After reading this report we expect the analysts will predictably defend the stock as they always do – hey, no doubt Emcore will need more money soon, and the banking business is too good to pass up.  The company might kick and scream and add short sellers to their agenda in presentations.  Citron will suggest a novel approach to management:  Instead of complaining about critics, make a profit for a change!  Sell your product to real customers, record more revenue than expenses and let your numbers do your talking.  As for the analysts, show some accountability here.  If and when Emcore misses your next quarterly estimates – hold the company and yourselves accountable.    But then again, you can just hold to your normal course of business…after all it is only Other People’s Money.

Cautious investing to all.