ATS plunges on Spheral Solar delays, writedown

ATS Automation Tooling Systems disappointed the market today by announcing that it was taking a $65-million writedown on its new Spheral Solar unit, which has been delayed in its march toward commercialization because of production troubles. The company said it hired a technical consulting firm to try to work out the problem — not a good sign. Overall, the company’s fourth-quarter performance wasn’t too bad, but concern over the new solar business created a panick, driving the stock down more than 23 per cent on the day. In fact, it was the biggest loser on the Toronto Stock Exchange. The stock closed at $11.99, far off its 52-week high of $18.45.

It’s a mystery what’s truly going on with this company. Analysts I’ve spoken with say ATS is taking this writedown because, without 100 per cent certainty on when the business will start generating cash flow, it has to follow accounting rules. At the same time, the company re-affirmed its timeline for the IPO of its Photowatt solar business, which includes both its Spheral Solar startup and its established Photowatt division in France. It still plans the IPO for the third or fourth quarter of 2006, so perhaps its problems aren’t as deep as it seems. Also, its partner Elk Roofing, which wants to start selling Spheral Solar-integrated roofing products, said earlier this month that they were “getting closer” with the product. Perhaps last-minute troubles emerged?

My overall assessment is that this latest update, while not good news, isn’t horrible news and doesn’t justify the company losing more than a quarter of its value in two days. That’s just ridiculous. Fact is its France-based solar business is doing fine, and I’d rather Spheral Solar get it right before the IPO than prematurely put a product into the market and lose the complete confidence of investors. I can’t imagine the company would work toward an IPO, and stick with its schedule, if things were as bad as the market is painting it.

I expect this stock to pop back in the next few days. At $11 a share, there’s going to be a rush back in. My own worry is that the IPO will be less than spectacular when it does happen, because ATS demonstrates time and time again how awful it is at marketing itself. And if it does drag this out to the fourth quarter, the shine could be off the solar IPO market as the industry enters a phase of even tighter silicon supplies.