Energy Conversion Devices, Inc.

views updated

Energy Conversion Devices, Inc.

2956 Waterview Drive
Rochester Hills, Michigan 48309
U.S.A.
Telephone: (248) 293-0440
Toll Free: (800) 528-0617
Fax: (248) 844-1214
Web site: http://www.ovonic.com

Public Company
Incorporated: 1964
Employees: 721
Sales: $66.3 million (2004)
Stock Exchanges: NASDAQ
Ticker Symbol: ENER
NAIC: 335911 Storage Battery Manufacturing

Energy Conversion Devices, Inc. (ECD) is a Rochester Hills, Michigan-based company that despite producing few profits in more than 40 years of operation has made great contributions to a number of technologies and materials taken for granted today, including fax machines, rewritable CD-ROMs, photocopy drums, flat-panel crystal displays, solar panels, and batteries used in cell phones, digital cameras, laptop computers, and hybrid cars. Since the beginning, the company's research has centered on phase change technology, the use of amorphous, or structureless, materials that can be charged by electricity or a laser beam to assume an ordered structure. Because such materials can be switched on and off, they have the ability to be used as a digital medium: the amorphous structure becomes zero (off), while the ordered structure becomes one (on). Perhaps of more importance is the switching speed of the material, so fast that timing equipment is unable to provide a precise measurement. Amorphous materials (chalcogenide alloys), which the company calls Ovonics after its founder, are therefore suitable for use in semiconductors, computer processors and memory, and optical devices such as computer flat-screen monitors and high-definition televisions. ECD divides its business among three primary segments. Ovonic Battery Company, Inc. concentrates on battery technology. United Solar Ovonic Corp. makes thin-film photovoltaic products. The parent company itself is involved in microelectronics, fuel cell technology, and hydrogen storage technology.

Founder Born to Immigrant Parents in 1920s

Energy Conversion Devices was founded by self-taught, maverick scientist Stanford Robert Ovshinsky and his wife, Iris L. Miroy. Ovshinsky was born in Akron, Ohio, in 1922, the son of a Lithuanian immigrant who supported his family as a scrap-metal dealer. Although uninterested in formal higher education, Ovshinsky grew up with a wide range of interests, including astronomy, biology, and chemistry, and read widely. After graduating from high school, as well as a trade school where he trained as a toolmaker and machinist, he opened his own Akron machine shop, which led to him becoming president of Robert Manufacturing Company in 1946. An inveterate tinkerer, Ovshinsky did a great deal of work on high-speed cutting machines, along the way experimenting with a wide variety of materials, eventually resulting in the first of some 300 patents he received: the invention in the 1940s of the Stanford Roberts automatic lathe. The high-speed lathe was ten times faster than previous tools, became used widely and attracted the attention of Connecticut-based New Britain Machine Company, which bought out Ovshinsky in 1950 and used the lathe to make automobile parts. He stayed on for two years before relocating to Detroit, where he became director of research at Hupp Corporation, an automotive supply company.

While at Hupp in the early 1950s Ovshinsky began thinking about ways to mimic how the brains of mammals worked, in particular how the neurons in brain cells functioned like on-off switches. He guessed that it was possible to design an energy-information system that worked in the same way. In 1955 Ovshinsky shared his ideas with the chairman of the medical college at Detroit's Wayne State University, who encouraged him to continue his work. Ovshinsky then began to experiment with amorphous substances, essentially glassy materials, and soon discovered that once they received a certain voltage of energy they changed phase and became an ordered structure. In 1957 he developed his first switch, which he called an ovonic switch, coining the word "ovonic" by fusing the beginning of his name with "electronics." It was a radical approach at a time when scientists often viewed disorder as little more than a nuisance. The early work being done on semiconductor technology was based on crystalline solids, dependent on atoms arranged in symmetrical patterns. Initially Ovshinsky's ideas were considered heretical to the academic world, due in large part to his lack of credentials. But the stark difference between what crystals and ovonic materials had to offer eventually won over the skeptics. According to a 2003 profile of Ovshinsky in World and I, "Unlike crystals, which are meticulously 'grown' and 'doped' with impurities, ovonic materials can be mixed to order and poured out by the square foot. The materials then can be used to store and release both energy and information."

Company Taken Public in 1964

During the 1950s Ovshinsky also found his life partner in Iris Miroy, who made up for his lack of credentials with a string of degrees. From the University of Michigan she received a bachelor's in zoology, followed by a master's in biology. She then received a Ph.D. in biochemistry from Boston University. They were married in 1959 and a year later founded Energy Conversion Devices to find practical uses for his breakthrough work with ovonic materials. To gain much needed money for research the Ovshinskys incorporated ECD in 1964 and made a public offering of stock.

Aside from his brilliance as an intuitive scientist, Ovshinsky also proved to be a natural salesman, a man not afraid to promote himself or his ideas. From the start of ECD he was able to attract funding even though he was never quite able to finally deliver on his promises. The company's standard operating procedure over the next 40 years was to forge a joint venture with a deep-pocketed corporation, which put up the money while the Ovshinskys contributed the ideas. Once the partner tired of waiting for a payoff in the form of a commercial product and backed out of the relationship, the Ovshinskys kept the technology, which they continued to develop with the next willing joint venture partner. In addition, ECD was also adept at attracting government research grants.

The Ovshinskys launched their major partnerships after the splash they made in 1968 by announcing ECD had succeeded in making a switch out of amorphous silicon that could be changed by varying the levels of electrical current. According to a 2003 Forbes article, "Ovshinsky said the switch would compete with silicon crystalline transistors, and in the space of a day ECD stock shot from $57 to $150. The transistor never made much money and the company's stock never returned to those heights, but Ovshinsky did manage to get the word Ovonics (and his name) into the dictionary." A less exotic application of ECD technology developed in the 1960s was chemical vapor deposition (CVD), followed later by physical vapor deposition (PVD) coating techniques. They would be used initially to coat watch parts with lubricants and later cutting tools with such materials as titanium carbide and titanium nitride. The process added greatly to the life of watch parts and tools.

ECD attracted the attention of IBM, which in 1972 provided funding for research in erasable Ovonic recording devices, work that would one day lead to optical laser disks but not aid ECD in developing a viable product and turning a profit. In 1976 the company struck a deal with 3M to distribute rewritable microfilm, prompting Ovshinsky to tell Forbes at the time, "We're finally moving to become a profit-oriented company." In 1979, however, 3M canceled the deal when the six prototype file machines ECD delivered failed to meet specifications and 3M demanded back its advance payment, which according to Barron's ECD kept.

The 1980s followed a similar track as the 1970s, as ECD continued to make scientific breakthroughs and burn through money. The company did manage to turn a profit in 1981, but that was due to a $3 million payment from Standard Oil of Ohio (Sohio) connected to one of two joint ventures, Sovonics Solar Systems and Sovonics Solar Technology, the two companies set up to continue ECD's research in solar cells. The money was received to transfer product licenses and technology to one of the joint ventures and did not actually represent true sales of any products or licenses. Over the next four years Sohio invested $90 million into the two partnerships, then in April 1985, after a change in leadership, Sohio decided to pull out of the joint venture, and converted its interests into common stock. Another partner ECD recruited in the early 1980s was Detroit-based American Natural Resources Company. Together, they formed Ovonic ThermoElectric Company and Ovonic Battery Company to develop battery technology and thermoelectric generators. All told, ANR invested $23 million before it too backed out in 1985 after concluding the joint ventures were not close to offering commercially viable products. As a result, ECD bought ANR, paying $8 million in a combination of stock and notes.

According to Business Week, less than $1 million of ECD's reported revenues of $30.1 million in 1985 were related to product sales. Despite its inability to make money, ECD continued to produce tantalizing products and technologies. It developed flexible solar cells in the form of roof shingles, consumer NiMH batteries, and the first commercial use of Ovonic phase-change optical recording technology. Nevertheless, the company was coming under pressure to move products to market and finally turn a profit after 20 years of promises. ECD consolidated its synthetic materials technologies into a subsidiary, Ovonic Synthetic Materials Co., in hopes of better exploiting its CVD and PVD technologies, which were finding increased usage in coating cutting tools. Other ECD coatings had decorative applications, and the company also developed multi-layer X-ray mirrors for use in microscopes, telescopes, and lasers that were not only durable but could be made in a variety of shapes and offered better reflectivity. The unit also offered new hard magnets with automotive, computer, and home appliance applications.

Company Perspectives:

The research and development team at ECD Ovonics, its subsidiaries, and joint ventures are focused on the development of new products and technology that will benefit our commercial partners. At ECD Ovonics, we invent the technology, the products, and production technology that will bring our vision to life.

To help prod ECD to profitability, the Ovshinskys cut their own salaries and gave up more than half their voting power. They soon faced a takeover bid in 1987 mounted by Manning & Napier Advisors Inc., a Rochester, New York investment company that opposed a management-nominated slate of directors. According to Crain's Detroit Business in a 1992 article, "A New York court decision gave Ovshinsky control but at a price. Under a complex agreement, ECD eventually sold controlling interest in a promising subsidiary, Troy-based OIS Optical Imaging Systems Inc., in order to meet financial obligations to Manning."

In the early 1990s ECD once again appeared to be on the verge of profitability. This time the product that was going to change the company's fortunes was an environmentally safe rechargeable battery, which used nickel and metal hydride rather than rely on lead and acid or nickel and cadmium. Not only were ECD batteries safer, they stored more energy than competing batteries. Although developed for use in laptop computers, cell phones, and other portable electronic devices, they became a serious candidate for use in electrical vehicles. Back in the early 1980s Ovshinsky began promoting the potential of ECD batteries to power vehicles, only to find Detroit uninterested. Instead, ECD began working with Korea's Hyundai Motor Company and an unnamed Japanese automaker. The green battery's promise was so great that it was chosen by a consortium of Detroit's Big Three automakers in its effort to develop an electric car, the greatest impediment of which was the battery. Traditional batteries had limited range, a short life, and high replacement cost. The Ovonic battery, although expensive, offered a power density three times that of lead-acid batteries, which translated into greater range and better performance, and they could be recharged quickly. The batteries would be used in the 1999 model of General Motors EV-1, the first American electric car to be sold to the general public, able to travel 150 miles before recharging.

Robert Stempel Taking Charge in 1990s

ECD also attracted the attention of Robert Stempel, former chairman and chief executive officer of General Motors Corporation, ousted in a boardroom coup after a 34-year career at GM. A trained engineer, Stempel joined ECD as an adviser in 1993 and became ECD's chairman in 1995, bringing with him stature and contacts that led to more joint venture partners, who were also greatly influenced by the credibility ECD received by the Big Three bestowing their blessing on the company. Not surprising, ECD forged a joint venture with GM. Stempel also had considerable executive experience and began to instill discipline into the company, which continued to find profits elusive but now began making a serious effort to become a manufacturing company rather than a mere licensor of technology.

One of those new partners was giant Intel, which helped in the research conducted on Ovonic Unified Memory technology. In 2000 ECD formed a joint venture with Texaco Energy Systems Inc. called Texaco Ovonic Fuel Cell Co. LLC, to develop regenerative fuel cell technology. In addition Texaco bought GM's 60 percent stake in GM Ovonic, which made nickel metal hydride auto batteries, and a 20 percent stake in ECD itself. GE Plastics also allied itself with ECD, establishing a joint venture, Ovonic Media, to develop optical media technology that would allow for high-volume DVD production. Another partner was Belgium-based N.V. Bekaert S.A., which joined forces with ECD to form Bekaert ECD Solar Systems L.L.C. in 2000.

Despite Stempel's presence, history appeared to be repeating itself for ECD in early 2003 when joint venture partners once again decided to stop funding the projects. ChevronTexaco Corp. cut off investments to Texaco Ovonic, as did GE Plastics and Bekaert. ECD cast about for new partners and announced that it would focus its fuelcell research on non-transportation applications, such as cameras and other consumer products that were more likely to produce near-term sales. With a steep rise in gas prices, however, the company soon resumed its work on hybrid car technology.

ECD received a much welcomed $10 million windfall in the summer of 2004 when it reached a settlement in a patent dispute regarding the use of nickel metal hydride battery technology. At the same time, Stempel announced that ECD would undergo a restructuring that included laying off employees and a redoubled effort to convert core technologies into commercial products. The goal was to achieve sustained profitability by the middle of 2006. Well into his 80s, Stanford Ovshinsky remained highly involved in the company, spending much of his time in the development of the Ovonic Cognitive Computer, which hoped to mimic the working of the biological brain.

Principal Subsidiaries

United Solar Ovonic Corp.; United Solar Ovonic LLC; Ovonic Fuel Cell Company LLC; Ovonic Battery Company, Inc. (91.4%); Cobasys LLC (50%); Ovonys, Inc. (41.6%); Ovonic Media, LLC (49%); Texaco Ovonic Hydrogen Systems LLC (50%); Ovonic Cognitive Computer, Inc.