ATS Automation Tooling Systems Inc. was in many respects saved this quarter — and year — by its solar division, which consists of Photowatt in France and Spheral Solar Power in Cambridge, Ont.

The solar group, which from a revenue perspective is only Photowatt at this point, grew revenues in the fourth quarter by 57 per cent to $41 million. For the year the group had $143.8 million in revenues, 62 per cent higher than the previous fiscal year. Operating earnings jumped three-fold to $13.1 million, and operating margins grew to 9.1 per cent from 4.8 per cent.

“Demand for solar products is expected to remain robust well into fiscal 2006 and our manufacturing efficiency and throughput at Photowatt have shown additional major improvements this year,” said ATS chief executive and president Ron Jutras. “We continue to actively manage the tight supply and rising prices of silicon feedstock. While the effects of tight silicon supply are uncertain, we believe Photowatt has secured sources for a significant amount of its capacity for fiscal 2006. As a result we expect Photowatt’s operating performance to remain strong.”

Commenting on ATS’s newest solar business, Spheral Solar Power (SSP), Jutras said strong solar market demand has created a “great environment” for the launch of Spheral’s technology. “Unprecedented demand for clean, renewable solar energy globally has created substantial interest in SSP’s products among wholesalers, distributors and retailers.” He said the company shipped its first fully functional SuperFlex products in April.

“As expected production volumes are very modest but we have now reached the next stage of our plan that will put the SSP factory through a deliberate and focused program of optimization. This is the normal course of commissioning a manufacturing facility of this magnitude. Our first optimization cycle is well underway and in June we will go into an intensive improvement stage which is expected to last approximately one month. We will then restart production, assess performance and begin a new round of optimization, each time gaining throughput and capacity improvements. Each stage of this optimization process should be shorter in duration.”

ATS is taking it slow with SSP, presumably because it wants to get things right before marching into a hot market with a product that could have glitches. The current factory in Cambridge has an annual output capacity of 20 megawatts. Jutras acknowledged that things are going slow, but he defended the approach. “This methodical and deliberate approach to factory ramp up is vital to ensure the factory can achieve intended yields at full capacity.”

Besides, it’s not like ATS is missing the solar boat by taking it slow with SSP. Photowatt is strong and doing well, margins are on the rise, and the company seems to be doing a good job of managing its silicon supply needs in a tight market where prices are rising. Investors seem to agree. ATS shares were up nearly 9 per cent on today’s earnings report.

I didn’t get a chance to listen to the morning conference call, but so far I’ve seen no mention of ATS’s intention of spinning off its solar group (or pieces of it) through an initial public offering, despite widespread expectation/speculation in the market. If I hear anything more, such as from conference call transcripts, I’ll post a quick update here.

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