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Hoku Scientific Haunted by Setbacks

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“Challenging” usually has positive connotations: something tough but invigorating and capable of making you stronger. These days, it’s being used more and more as a euphemism for “terrible.”

Dustin Shindo, CEO of Hawaii-based solar company Hoku Scientific (s HOKU), used the word in his company’s press release announcing a financial quarter that can, realistically, only be described as terrible.

Three months ago, Hoku forecast revenue for the year ending March 31, 2009 to be between $15 million and $18 million. Now it expects only $5 million. Revenue in the most recent quarter totaled $767,000, 47 percent down from the same quarter a year ago. Analysts following Hoku were looking for $4.9 million in revenue.

The silver lining is that Hoku posted a loss of three cents a share, half of the six-cent loss analysts were expecting. Hoku was down 5 percent in after-hours trading following the earnings, reversing most of the 7 percent gain it made during market hours Wednesday.

In a way, it’s not as bad as it sounds. Much of the revenue vanished from this year will be spread out over the next two decades. Last fall, Hoku signed a contract with the Hawaii Department of Transportation to design solar systems for the state’s airports. The company initially hoped to sell the systems to a third party for an immediate payout. But a sudden change means that, instead of recognizing revenue from the sale of solar systems right away, Hoku will now record cash flows over 20 years.

But that news is coming alongside other setbacks. Hoku is building a $390 million polysilicon plant in Pocatello, Idaho, in the depths of a credit crunch. To finance its new plant, Hoku had been expecting prepayments or deposits from customers. It’s collected $106 million in prepayments so far, up from $48 million a quarter ago. One customer, Solargiga (aka Wealthy Rise International) is in default on $43 million in prepayments. Solargiga is also on the hook for another $25 million due later.

Another customer, Jiangxi Jinko Solar Co., is current on its payments but recently amended a 10-year contract so that the volume of polysilicon that Hoku is now worth $178 million, a big discount to the original $298 million contract.

So instead of getting $306 million in funding from customers for the plant, Hoku will get only $216 million. The rest will come from reselling the Solargiga capacity, from stock or debt financing, or cutting back capital expenditures. Shindo said Wednesday the snafus could delay the plants first shipments from the first half of this year to the second half. A planned ramp up could be pushed back to 2010.

This is a tough time for Hoku, and anything but invigorating. But with some luck and hard work it could leave Hoku a stronger company when things turn around.

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