Energy Conversion Devices, Inc. 1997 Letter to Stockholders
Commercializing technologies that enable the energy and information industries
Picture of an Ovonic Nickel Metal Hydride battery pack
Picture of a roll of thin-film amorphous photovoltaic panel
Picture of PD disk
INSIDE FRONT COVER: Reproduction of advertisement from the October and November
1997 issues of Scientific American
This is what happens
(Picture of Solectria electric vehicle with following caption: Ovonic NiMH
battery for electric vehicles. Available now. High energy for extended driving
range.)
when a bunch of socially responsible dreamers
(Picture of house with solar shingles with following caption: Photovoltaic roof
panels. Available now. Flexible, thin-film solar cells for clean electric power
from rooftops.)
decide they really don't care
(Picture of optical disk cartridge with following caption: Rewritable optical
memory disks. Available now. ECD's phase-change technology has 650 Mbyte
removable capacity.
And soon, rewritable DVD.)
To be called dreamers.
Pictures of car, house with solar shingle and optical disk cartridge
Ovonic battery-powered car. Photovoltaic roof panels. Rewritable optical memory
disks. Available now.
For more information on how Energy Conversion Devices, Inc. Is helping to change
the way the world stores and generates energy and information, call
1-248-280-1900. Write us at Energy Conversion Devices, Inc., 1675 West Maple
Road, Troy, Michigan 48084. Or visit our Web site: www.ovonic.com.
ECD's LOGO The world won't be the same with us.
Energy Conversion Devices, Inc.
Dear Stockholders,
Energy Conversion Devices, Inc. (ECD), originated and holds the basic dominating
patents for nickel metal-hydride batteries; thin-film, roll-to-roll photovol-
taic cells; and information products based on electronic switching and phase-
change memory in amorphous and disordered materials. The message of the
advertisement on the facing page is Ovonic Products Are Available Now. ECD has
invented the materials, the products and the production processes that make
these technologies the leaders in energy and information fields using amorphous
and disordered materials. Products that are manufactured by ECD, or by
partnerships and joint ventures, or by licensees, have gained worldwide
commercial acceptance and recognition. As part of our expanded marketing effort,
this advertisement ran in the October and November 1997 issues of Scientific
American on four half pages that successively highlighted batteries,
photovoltaic panels, optical memory disks and then all three products together.
A very favorable article about hybrid electric vehicles on page 73 of the
October issue said that, "One of the few real success stories has been the use
of nickel metal-hydride batteries, produced by GM Ovonic and Energy Conversion
Devices in Troy, Michigan ..." This has been a year when ECD's products have
received worldwide acclaim at the same time that the marketplace is searching
for affordable, environmentally-friendly ways to store and generate energy and
to rapidly and compactly store and retrieve data.
ECD has three core product areas:
Energy Storage (nickel metal-hydride batteries)
Energy Generation (flexible, thin-film photovoltaic products)
Information and Data Storage (phase-change optical and
electrical memories)
All of these products are based on the company's proprietary amorphous and
disordered materials. An important complementary business is our Production
Technology and Machine Building Division, which designs and builds many of the
special machines used by ECD and its joint ventures and licensees to manufacture
the core products. Let's look at each of the core products in more detail.
Energy Storage
Picture of GM Ovonic nickel metal hydride battery pack
On November 12, 1997, the first electric vehicle (EV) powered by a production GM
Ovonic nickel metal-hydride (NiMH) battery pack was delivered by the Chevrolet
Division of General Motors to Southern California Edison. The following day, two
more Chevrolet S-10 EV pick-up trucks with GM Ovonic NiMH battery packs were
delivered to Detroit Edison and Georgia Power. A total of 30 S-10 EVs and EV-1s
equipped with GM Ovonic NiMH batteries were placed in service in late 1997, and
additional vehicles will become available in the first half of 1998. During
1998, GM Ovonic L.L.C., our joint manufacturing venture with General Motors,
will be increasing production of NiMH batteries for both electric cars and
trucks and preparing for hybrid electric vehicle (HEV) battery production.
Ovonic NiMH batteries have moved from concept to commercial production in a
relatively short time:
Ovonic Battery Company Inc., a subsidiary of ECD, was founded in 1982 to develop
and commercialize patented and proprietary NiMH rechargeable battery technology.
Beginning in the late 1980s, the first Ovonic NiMH batteries were commercialized
under license from Ovonic Battery to all significant manufacturers of small
batteries and introduced into the marketplace for portable electronics
applications.
In 1993, Ovonic Battery delivered its first EV battery packs for test and
evaluation by vehicle manufacturers.
In 1994, General Motors Corporation and Ovonic Battery formed a manufacturing
joint venture, GM Ovonic, to commercialize NiMH batteries for EVs.
In 1996, GM Ovonic began production of its first generation of NiMH EV batteries
using initial manufacturing equipment and began developing high-volume processes
for battery production.
In 1997, Ovonic Battery developed a "Family of Batteries" to power the full
range of EVs and HEVs.
In 1997, the first NiMH production batteries are in daily customer use and are
becoming the battery of choice in the EV industry.
In 1998, GM Ovonic will be increasing production of NiMH batteries for both
electric cars and trucks.
Most of our stockholders are aware of the numerous range records that have been
set by Ovonic battery-powered EVs and the many EV races our batteries have
helped to win. Some of the results appear on our website at http://ovonic.com.
On October 23, 1997, a Solectria Sunrise mid-size four-passenger prototype EV,
powered by Ovonic NiMH batteries, traveled from Boston to New York City (216
miles) on a single charge at normal highway speeds using about 85 percent of the
available energy. The event was covered by Boston and New York-area radio and TV
stations and The New York Times. After a few hours of re-charging in the
evening, the Solectria Sunrise was driven back to Boston the following day. To
illustrate how efficient electric vehicles are, the Sunrise battery pack
contained slightly less heat energy (equivalent BTU) than one gallon of
gasoline.
The New York Academy of Sciences coordinated the event, which was sponsored by
the Metropolitan Section of the Society of Automotive Engineers and the Spectrum
magazine of the Institute of Electrical and Electronic Engineers. Its purpose
was to demonstrate that efficient EVs with advanced battery systems-exemplified
by the Ovonic NiMH batteries- can make EVs a practical choice for many U.S.
motorists.
With the low operating costs, smooth, fast, and quiet driving characteristics,
and long, trouble-free life of today's EVs, many drivers find that these
vehicles will meet their driving requirements with ample energy reserve.
Caption: 1998 Solectria Sunrise sedan with aerodynamic composite-fiber body
powered by 30 kWh Ovonic NiMH batteries
Picture of Solectria Sunrise
Photo courtesy Solectria Corporation/Photo by Sam Ogden
More than a year ago, it became apparent that automotive manufacturers were also
looking at another type of energy-efficient vehicle-the hybrid EV (HEV). The HEV
uses a small-displacement internal combustion engine in conjunction with a
battery-powered electric drive. The series HEV uses its engine to drive a
generator to charge the batteries, which are connected to an electric drive
motor. The parallel HEV uses both its engine and an electric motor to drive the
vehicle. In both parallel and series HEVs, fuel economy is improved and exhaust
emissions are reduced in comparison with similar-size conventional internal
combustion engine vehicles. However, only the all-electric vehicle is classified
as a ZEV, or zero-emission vehicle, by the U.S. Environmental Protection Agency.
At ECD and Ovonic Battery, we began our own development program to be certain
that we could meet battery requirements of the manufacturers of both EVs and
HEVs. The result is our family of Ovonic batteries that exhibit a wide range of
power and energy characteristics suitable for any type of EV or HEV. While ECD's
investment in developing this range of batteries has been significant, it was
necessary to be able to successfully demonstrate the capabilities of the
batteries. One outgrowth of our program is a multi-year, double-digit million
dollar program with General Motors to turn the battery family into a fully
commercial product line.
Ovonic Battery also recently was awarded a multi-year, double-digit million
dollar cost-shared contract to support development of the next generation of
high energy density NiMH batteries using low-cost, magnesium-based hydrogen
storage materials. The contract was awarded by the U.S. Department of Commerce
under its Advanced Technology Program.
Family of Ovonic NiMH Batteries
Top view of battery modules
Side view of battery modules
Caption: Advanced energy storage solutions for electric and hybrid vehicles
Ovonic NiMH Battery Performance Characteristics
GMO1 GMO2 GMO3** HEV60 HEV20**
Capacity (Ah) 90 100 100 60 20
Specific Energy (Wh/kg) 75 80 95 70 65
Energy Density (Wh/L) 170 200 230 170 160
Specific Power (W/kg)* 225 300 350 630 650
Power Density (W/L) 600 750 850 1,700 1,600
* 50 percent DOD
**Preliminary numbers for design under development
Several potential customers are interested in Ovonic NiMH HEV batteries because
of their ability to accept a charge at very high rates and their unique high
energy density that maximizes driving range. This is an especially important
characteristic for HEVs because
they need to capture as much of the energy generated during deceleration as
possible. The more closely matched the charge (deceleration) and discharge
(acceleration) rates of the battery, the better balanced the vehicle drive
system will be. Compared to other types of batteries, including those with high
power capability, the Ovonic NiMH HEV battery excels. In addition to the
recently introduced Toyota HEV, General Motors has announced plans to introduce
HEVs soon.
Chart comparing the module voltage vs. Current (amps) of Ovonic NiMH HEV module
to a high-power lead-acid battery module
The chart above compares the voltage-current characteristics of the Ovonic NiMH
HEV module to a high-power lead-acid battery module during an aggressive HEV
driving cycle. In contrast to the lead-acid battery, the slope of the Ovonic
NiMH data is constant and shows much lower resistance on charge. The Ovonic NiMH
battery effectively has the same resistance on both charge and discharge, which
means that it has greater acceptance for regenerative energy during deceleration
or braking.
Another important characteristic of Ovonic NiMH batteries is their ability to
perform over a wide range of operating temperatures, which permits thermal
management to be achieved by simple air-cooling methods. The plot below shows
the temperature dependence of battery performance taken as the dynamic stress
test (DST) capacity under simulated driving conditions. Note that the wide
operating range extends to very low temperatures where other batteries suffer
substantial losses in capacity.
Plot showing Ovonic NiMH EV Battery dynamic stress test capacity
Picture of scooter powered by Ovonic NiMH batteries
As we mentioned in last year's report, there is an emerging demand for
electric-powered scooters and electric power-assisted bicycles. In Japan,
Southeast Asia and Europe, several manufacturers are conducting fleet tests and
beginning to offer products for sale. In Japan, our partner Sanoh Industrial Co.
Ltd. (Sanoh) is making scooter and bicycle NiMH batteries that are being tested
by leading Japanese manufacturers. In Europe, we have prepared and delivered the
first fleet of electric-powered scooters for evaluation to Piaggio. The
formation of Sanoh Ovonic Power Systems Corporation in the United States, with a
manufacturing facility in Europe, will provide a base for battery production to
supply European scooter manufacturers. It appears that the electric scooter
market will grow quickly due to the vehicle's operating performance, low
maintenance requirements and extremely low operating cost. Since the vast
majority of scooters sold today are powered by two-cycle gasoline engines, the
elimination of their exhaust emissions will significantly improve air quality.
Picture of Piaggio scooters with Ovonic NiMH batteries ready for evaluation.
Standing, from left to right, are Art Holland, Subhash Dhar, Robert Stempel,
Iris Ovshinsky, Stan Ovshinsky, Phil Gow, Tony Osgood and Josh Payne. [ECD and
Ovonic Battery personnel.]
This past year, GM Ovonic production NiMH EV batteries were manufactured at its
Troy, Michigan, plant. Although limited in physical size, this facility
permitted us to install the first production manufacturing and assembly
equipment for tryout, debugging and quality validation. As we prepare to
increase production, GM Ovonic operations will move to a much larger facility
that will permit the installation of additional production equipment. Currently,
GM Ovonic is in the process of finalizing agreements for various industrial
incentives and training grants available from state and local governments.
The move to larger facilities will not only permit us to increase production but
also will make the Troy facility available for its original intended purpose,
which is production process development and validation of cost- and
weight-saving advanced designs that will help us meet very aggressive cost
targets. We expect Ovonic NiMH batteries to be equivalent in cost (battery pack
plus electricity to recharge) to the life-cycle fuel cost for an internal
combustion engine powered vehicle, while maintaining and improving all of their
superior performance characteristics.
Attention has been focused on climate change and global warming during the past
year, culminating in the worldwide conference in Kyoto, Japan, in December. As a
result, greater effort is being made to reduce greenhouse gases. The primary
greenhouse gas is carbon dioxide, which is formed when fossil fuels such as oil
and coal are burned. While today's motor vehicles have very low exhaust
emissions, increases in both the number of vehicles worldwide and the number of
miles driven will require automakers to reduce emissions further or eliminate
them altogether to reduce greenhouse gases. Hence the heightened interest in EVs
and HEVs.
While automakers have been testing a variety of concepts to reduce emissions,
some EVs and HEVs have been introduced for sale to the public, and this has
initiated a competitive race. Cleaner, more efficient vehicles are attracting
increasing public interest, and all of the automakers want to be seen as having
environmentally-friendly offerings in their product lines. All of these new
vehicles use some form of electric drive and batteries for energy storage. The
Ovonic family of NiMH batteries is permitting us to meet a wide range of
specifications submitted by a number of automakers, and we believe that our
product line will lead to an increased volume of business in the months ahead.
At the recent EVS-14 International Electric Vehicle Symposium in Orlando,
Florida, virtually all of the world's automakers were using Ovonic NiMH battery
technology to power their vehicles.
There are many other uses for nickel metal-hydride batteries, ranging from small
cells that replace nickel cadmium batteries in cell phones, notebook computers
and other electronic devices, to larger batteries for electric lawn mowers and
other lawn and garden applications; superior starting batteries for conventional
automobiles; and stand-by power for utilities, home use and emergency power.
Ovonic Battery manufactures batteries for selected customers and electrodes for
sale to its licensees. The Ovonic NiMH battery technology continues to gain
commercial acceptance worldwide.
News Bulletin
Picture of General Motors corporate exhibit of advanced technology featuring GM
Ovonic nickel metal hydride batteries at the 1998 North American International
Auto Show in Detroit, Michigan
DETROIT, January 4, 1998-Ovonic NiMH batteries were featured in the General
Motors corporate exhibit of advanced technology vehicles (pictured above) at the
North American International Auto Show in Detroit, Michigan, January 1998. All
advanced EV, HEV and fuel cell vehicles were shown with GM Ovonic battery packs
installed. The display highlighted the Ovonic family of batteries featuring the
current production EV battery and next generation EV batteries with higher
energy and power at lower cost. Two types of HEV batteries also were displayed
as part of the "Family of Batteries" to illustrate the versatility of the
engineered Ovonic NiMH battery.
General Motors currently is offering the GM Ovonic NiMH battery in the Chevrolet
S-10 electric pick-up truck available in all 48 states (see photo on back
cover). GM announced that its electric car, EV-1, will be available with GM
Ovonic NiMH batteries to provide more than two times the current EV-1 driving
range on a single charge.
Several other leading automakers also featured vehicles using Ovonic NiMH
technology at this auto show.
Energy Generation
Photovoltaics (PV)-the direct conversion of sunlight into electricity-holds the
key to solving the world's energy problems. Energy from the sun is nondepletable
and nonpolluting. Since the 1970s, ECD, through its Solar Energy Division,
developed the materials and technology essential to allow a shift to solar
energy, making PV viable for large-scale terrestrial applications.
In 1990, ECD and Canon, Inc., formed their joint venture, United Solar Systems
Corp. (United Solar). With the worldwide acceptance of United Solar products, we
are expanding to meet growing market demand.
United Solar's Triple Junction technology provides unprecedented levels of
efficiency for amorphous silicon alloy solar cells and modules. United Solar
combines this advanced technology with a proprietary roll-to-roll production
process pioneered by ECD in which solar cells are deposited onto a half-mile
long roll of thin stainless steel. The manufacturing plant has an annual
capacity of five megawatts and produces a variety of lightweight, rugged and
flexible products. One of its unique products is a solar electric laminate for
building-integrated photovoltaics.
The United Solar Triple Junction cell uses a stack of three thin-film sub-cells
that separately convert the red, green and blue portions of the solar spectrum.
The solar cell, made of a multi-layer stack of amorphous silicon alloy films
less than a micrometer thick, is deposited on a 5-mil-thick stainless steel
substrate and encapsulated in Tefzel(R) elastomer and other weather-resistant
polymers. The resulting solar electric laminate is bonded to conventional
roofing panels or fabricated into roofing shingles.
Picture of Uni-Solar (TM) structural standing seam panels
Picture of Uni-Solar roofing shingles
These products permit the roof of a building to provide more than simple
protection from the weather. The roof now becomes a source of electric power.
Uni-SolarTM PV shingles are unique and have been honored with the prestigious
Popular Science Grand Award for "Best of What's New" (Environmental Technology)
and Discover magazine's "Technological Innovation Award" for best innovation
(Environment). Commenting on the award, U.S. Department of Energy (DOE)
Secretary Fedrico Pena said, "There is a tremendous international competition in
the development of roof-integrated solar panels, and DOE is proud to be
associated with this cutting-edge technology to maintain the U.S. lead in the
world."
Uni-Solar building-integrated architectural metal PV panels are reliable,
attractive, and cost-effective design options for creating sustainable and
energy self-sufficient buildings. Aesthetically-pleasing solar architectural
roofing panels are integrated into the roof following the specifications of
conventional architectural standing seam panels.
Picture of the Engineering Lab on the campus of the University of California at
Irvine showing six kW of peak power being provided by United Solar's structural
standing seam roofing panels to the Lab. Excess power is fed back to the local
electric grid. The system was installed by Solar Utility Inc., Culver City,
California, under contract to Southern California Edison.
Uni-Solar roofing products are the key components of a total solar electric
system. The system integrates the solar electric roofing panel or shingle with
the necessary combiner boxes, inverter, and wiring to convert sunlight into
electric energy and distribute it directly to a building. The solar electric
roofing products are configured in series or parallel on the roof deck to form
an array, which is used in combination with conventional roofing products.
This past year, an important step toward greater commercial use of solar roofing
materials was taken. On June 26, 1997, President Clinton said during his remarks
before the Special United Nations Session on the Environment, "Now we will work
with businesses and communities to use the sun's energy to reduce our reliance
on fossil fuels by installing solar panels on one million more roofs around our
nation by 2010." Secretary Pena specifically mentioned the Uni-Solar shingles
while announcing the "Million Roof Program." To meet the growing demand for
roof-integrated PV, United Solar has been taking steps to increase the
availability of these roofing products and finding innovative ways to encourage
their use.
DOE is coordinating a federal inter-agency working group to develop incentives-
such as low interest rates, long-term loans and special mortgage programs for
new construction-that take into account the full value of solar roofing
materials for both protection and as a source of power. President Clinton also
announced that the federal government will use solar roofing at many
government-owned facilities.
Today, in off-grid locations, electric power generated by Uni-Solar panels is
very cost-competitive with power from conventional sources such as stand-alone
motor- generators. And, of course, solar-electric power is pollution-free.
United Solar is selling a complete line of products worldwide. The Uni-Kit TM
is a solar lighting system that is targeted at supplying power to two billion
people in the world who do not have access to electricity. The Uni-Kit Solar
Lighting System pictured below converts sunlight to electricity and charges
batteries during the daytime for lighting use at night. This versatile system
also can power a 12-volt radio or television. Because it is lightweight and
durable-there are no glass or crystalline components to break or shatter-it is
receiving enthusiastic acceptance throughout the world.
Picture of United Solar's Uni-Kit(R)
As the market for solar products continues to increase, United Solar plans to
expand production from its current five megawatt annual capacity, which will
permit us to achieve lower production costs. Our goal is to bring PV roofing
system costs down to a level that is competitive with electric power generated
by burning coal, gas or oil.
There are huge market opportunities to be addressed in the generation and
distribution of electricity. This is one of the world's largest businesses with
annual revenues estimated at more than $800 billion, roughly twice the size of
the worldwide automotive industry. Moreover, energy forecasters are predicting
enormous growth during the next few decades, with revenues in the trillions of
dollars.
The recent United Nations Convention on Climate Change in Kyoto was attended by
representatives from more than 150 nations. The gathering underscored the
importance of and opportunities for our technologies. President Clinton has said
that "Global climate change is the premier environmental challenge and
opportunity of the 21st Century..." Technologies that are available today to
meet the global climate change challenge can provide economic growth, jobs,
export opportunities and profits while at the same time reducing our dependence
on oil and other fossil fuels. Because our PV and battery technologies can play
a key role in the climate change challenge, we were invited to participate in
both the White House Conference on Climate Change and the convention in Kyoto.
We believe that the interest in our products and technologies, together with new
programs under development to encourage deployment of environmentally-friendly
products worldwide, will have a favorable impact on our business.
United Solar's thin-film amorphous silicon alloy solar panels also are of
interest to the telecommunications industry for terrestrial use to power
repeater stations and for use in space. While satellites have long used
crystalline silicon or gallium arsenide solar cells to generate power, these
cells are expensive, fragile and significantly heavier than our thin-film cells.
NASA has confirmed high total area efficiency of 12 percent for United Solar
cells under the AM-0 solar illumination present in space. This achievement has
generated interest in using United Solar cells in a number of space-based
applications that many telecommunication companies believe are crucial to
satisfy the demand for more communication bandwidth. This demand is being driven
by growth in the number
of telephones, the need for faster Internet access, and growth in interactive
television, videophones/videotext and other forms of electronic commerce.
With an increasing awareness of the need for low-cost PV to generate power for
space-based applications, United Solar is evaluating its technology and products
for use in satellites. United Solar has demonstrated the radiation hardness and
superior high-temperature properties of its cells which enable them to retain
much more power than conventional crystalline cells under high-temperature
conditions.
United Solar products use a high-efficiency thin film on substrates of very thin
stainless steel or lightweight polymers to achieve specific power density of 50
to 100 times that which can be obtained with conventional technologies. Mass
production of United Solar products will result in economies of scale that
reduce product cost to a fraction of the cost of products based on conventional
technology. We have been approached by several space companies that recognize
the need for low-cost PV for use in a constellation of satellites and other
space platforms that will be launched during the next five years. We believe
that amorphous silicon alloy and related materials are the enabling technology
for these applications, and United Solar is the leader in this field.
Information Technology
There is international recognition of Stan Ovshinsky and ECD's role in inventing
and developing phase-change optical memory technology.
Energy Conversion Devices, Inc. December 1997
From the desk of
Robert C. Stempel
To: ECD Stockholders
Subject: Recognition of Phase-Change Technology
Last year (1996), the Japan Phase-Change Optical Recording Association held its
annual symposium with the theme, "Phase-Change from S.R. Ovshinsky to the
Present." This year (1997) at the Ninth Annual Symposium, Stan was the featured
speaker and updated the group on the development of phase-change technology.
Forty-six companies, all involved in some facet of phase-change technology or
production of devices based on the technology, honored Stan as the inventor and
developer of phase-change technology. As the manufacturers prepare to enter
large-scale DVD production in 1998, they felt that it was important to
acknowledge the man who made it all possible.
Matsushita Electric Industrial Co. Ltd., our lead licensee in phase-change tech-
nology, planned and organized several recognition events for both Stan and Iris.
From a beginning where few companies were interested in phase-change, Japan and
the world now acknowledge that phase-change is the winning technology. This is
indeed an important recognition as the use of this new data recording technology
grows and erasable DVD is introduced.
R.C. Stempel
Chairman
During this past year, it became apparent that ECD's high-capacity phase-change
optical memory technology will be the technology of choice for rewritable
digital versatile disks (DVD). ECD originated phase-change optical memory and
has licensed this technology to leading electronic and computer companies. DVD
disks can store seven times more data than comparable CD-ROMs, and they have the
potential to broaden the market for optical memory disks, especially if
manufacturing throughput can be increased while simultaneously decreasing
manufacturing costs. While DVD media are projected by industry forecasters to
grow in the near-term to a $2 billion industry for consumer electronics and
computer storage, this technology also can extend its impact to the photographic
industry and the medical-records industry for storage of X-rays and other
medical information.
OPTICAL MEMORY DISK TECHNOLOGIES
Disk Type Storage Type Read Compatibility Capacity Technology
CD Read-only 650MB
(audio) (74 min.)
CD-ROM Read-only CD, Photo CD, CD-R, CD- 650MB
RW (after 1997)
DVD-ROM Read-only CD, CD-ROM, DVD, Photo 4.7GB
CD, CD-R, PD, CD-RW,
DVD-RAM
DVD Read-only 4.7GB (2
(video) hrs.)
Photo CD Write-once (no separate drive) 650MB
(images) (100
images)
CD-R Write-once CD, CD-ROM, Photo CD 650MB
PD Phase-change CD, CD-ROM, Photo CD, 650MB ECD
Rewritable CD-R
CR-RW Phase-change CD, CD-ROM, CD-R, 650MB ECD
Rewritable Photo CD
DVD-RAM Phase-change CD, CD-ROM, DVD, Photo 2.7GB ECD
Rewritable CD, CD-R, PD, CD-RW,
DVD-ROM
DVD-RW Phase-change CD, CD-ROM, DVD, Photo 3.0GB ECD
Rewritable CD, CD-R, PD, CD-RW,
DVD-ROM
ECD recently was awarded a two-year, multi-million dollar contract to support
development of a new, low-cost manufacturing system for DVD. The new disks will
be fully compatible with current DVD standards, and the objective of the
development program is to increase manufacturing throughput and significantly
reduce costs. Low-cost DVD-ROM disks are expected to enable the economical
distribution of multimedia publications. The contract was awarded by the U.S.
Commerce Department through the Advanced Technology Program of the National
Institute of Standards and Technology. The new manufacturing system to be
developed will produce both prerecorded DVD-ROM media and phase-change
rewritable DVD-RAM media.
Picture of PD disk
Caption: ECD's thin-film phase-change technology is used in the recording layer
deposited on the surface of this rewritable PD disk.
ECD will use its pioneering expertise in roll-to-roll vacuum manufacturing and
phase- change materials to develop a low-cost, high throughput manufacturing
system that both formats and coats the DVD media in a single process. We expect
this new technology, when fully developed, will increase throughput and reduce
cost by a factor of 10.
As the chart on the previous page shows, ECD technology is expected to be used
in all of the new rewritable optical memory products. Several Japanese
manufacturers have announced plans to introduce DVD-RAM drives and disks "at
strategic prices" (i.e., at affordable prices) in the U.S. with volume
production starting at about 200,000 drives/manufacturer/year.
The demand for high-capacity data storage continues to increase. Recently, ECD
teamed with Calimetrics, Inc. and Polaroid Corporation to win a federal
government Advanced Technology Program award administered by the National
Storage Industry Consortium to develop new optical disk storage technologies.
The goal of the research and development program is to deliver up to 10-fold
increases in storage capacity and significant increases in the data transfer
rate of phase-change, write-once and rewritable DVD-compatible optical storage
technologies. These technologies currently store between 2.6GB and 3.9GB of data
(equivalent to 1,800 to 2,700 computer floppy disks) on a single-layer CD-size
disk. The increased capacity and performance targets of the research program
would make it possible to store several hours of High-Definition TV (HDTV)
content, or thousands of professional-quality, high-resolution still photos, on
a single-sided disk. The project team is developing technology to record data
using our proprietary ability to provide multiple levels of reflectivity on
Ovonic phase-change optical disks.
We believe that the long-range potential for phase-change material is virtually
unlimited with these new technological advances that greatly increase capacity
and lower cost. With many manufacturers who already have licensed phase-change
technology and many more applying for licenses, we expect a steady growth in
phase-change royalties.
We expect a steady growth in phase-change royalties.
Energy Conversion Devices, Inc.
Intellectual Property/Patents
ECD's most valuable asset is its extensive patent portfolio of 352 issued U.S.
patents and 825 foreign counterparts. Covering all aspects of our core
businesses, they have resulted from our more than 30 years of work in the
advanced technologies described earlier in this letter.
During 1997, the Japanese Patent Office in Tokyo recognized and registered the
important, basic Ovonic Battery patent for nickel metal-hydride batteries. In
doing so, ECD prevailed over the opposition of major Japanese and foreign
battery manufacturers. This patent is a counterpart to U.S. Patent No. 4,623,597
that specifies the fundamentals that make NiMH batteries possible and
commercially feasible. Japan joins 14 other industrial nations that have
recognized the patent. In addition to the basic patent, a continuing stream of
significant patents assure that Ovonic Battery will continue its leadership in
the NiMH battery field.
During this past year, ECD spent $3 million defending its patent rights,
primarily against Matsushita Battery Industrial Co., Ltd. (MBI), with respect to
certain Ovonic Battery U.S.
patents covering proprietary technology for NiMH batteries.
The case was conducted in the U.S. District Court for the District of Delaware.
On December 23, 1997, the judge issued the final order and opinion giving ECD
and Ovonic Battery precisely the results we had sought, with the sole exception
of denying our request for attorneys' fees. The decision effectively limits MBI
and its joint venture with Toyota Motor Corporation, Panasonic EV Energy Co. of
Osaka, Japan, to one low energy density model EV battery (MHI-BX) covered by
prior agreement with MBI without the ability to further improve the battery by
utilizing ECD's advanced NiMH technology. The MHI-BX battery has lower specific
energy than the current production GM Ovonic EV battery and significantly less
energy than our advanced family of batteries, which puts the GM Ovonic battery
in a much stronger competitive position.
This very favorable court outcome, coupled with the issuance of the basic
Japanese patent for our Ovonic NiMH battery, confirms our dominant position and
enhances our future business transactions. Both actions illustrate the strength
of our basic intellectual property rights worldwide.
Financial Results/
Undervalued Assets
During the past year, ECD leveraged its strong financial position to invest in
its many products. (For details of the company's financial performance, refer to
our 1997 Annual Report on Form 10-K.) These investments improved our
manufacturing base and also supported our product development for the very
successful "Family of Batteries" noted earlier in this letter. Our product
development expenditures were $21.4 million in 1997,
ECD's Investment in R&D and Product Development
1994 1995 1996 1997
----- ---- ---- ----
(Annual Expenditures in 000's)
Cost of Funded R&D 8,700 11,014 7,582 5,871
Cost of Unfunded R&D 2,671 4,636 9,151 15,551
only $5.7 million of which was offset by outside funds as shown in the chart on
page 14. These investments have resulted in patents and other proprietary rights
that increase the value of the company, although Generally Accepted Accounting
Principles require that they be expensed.
As a result, our balance sheet does not reflect the value of some of our most
important assets. In the chart below, ECD's patents-as well as our 49.98 percent
interest in the United Solar joint venture (in which our joint venture partner
has invested more than $55 million) and our 40 percent interest in GM Ovonic-are
valued at zero.
We are certain that our stockholders agree that these assets are of enormous
importance to the company. Despite their value not being recorded on our balance
sheet, these assets-particularly the intellectual assets-greatly enhance our
ability to execute a three- pronged commercialization strategy consisting of:
Joint ventures and business alliances that enable ECD to dominate important
growth markets;
Licensing ECD products to provide a strong royalty stream; and
Building our manufacturing base to bring to market materials, battery
electrodes, finished products and production equipment.
As a direct result of our investment strategy, ECD has been awarded a number of
important new, funded development contracts during the last year, and we
continue to make progress in commercializing key enabling technologies for the
energy and information industries.
ECD's Undervalued Assets
Carrying Value
at June 30, 1997 Current Market Value
Patents $-0- ECD's patent portfolio consists of 352
United States and 825 foreign patents,
including many basic patents in mate-
rials, devices and production techno-
logy.
Joint Ventures/Subsidiaries
United Solar $-0- Canon has invested more than $55 million
(Owned 49.98% by ECD) for its 49.98% interest in United Solar
in recognition of the value of ECD's
technology contributions.
GM Ovonic $-0- GM has invested approximately $20 mil-
(Owned 40% by Ovonic lion in production manufacturing equip-
Battery ment for its 60% interest in GM Ovonic
in recognition of ECD's technology con-
tributions.
Sovlux $-0- KVANT/MINATOM has invested $15 million
(Owned 50% by ECD) for its 50% interest in Sovlux in
recognition of ECD's technology contri-
butions.
Ovonic Battery Company $(19,406,000) Ovonic Battery Company Ovonic Battery
(Owned 93.5% by ECD) entered into royalty-bearing license and
other agreements with: GM Ovonic,
Hitachi-Maxell,GP Batteries, Matsushita,
Samsung, Eveready, USABC, APIC, Walsin,
Varta, three major Japanese manufac-
turers, Furukawa, Daido Steel, Harding
Energy, Canon, LG Chemical, Piaggio,
Saft, Honda, Hyundai, Sanoh and Sovlux.
Capital Equipment $(6,968,000) Estimated replacement value in excess of
$15 million.
Tax Loss Carry Forward $-0- Estimated $39 million in reduction on
future income taxes.
Our long-serving director, Jack T. Conway, is retiring from the board of
directors and is not standing for re-election this year. Jack has devoted much
of his life to labor and social issues. He has had an active national role in
improving labor-management relations in the collective bargaining process. He
also was involved with the Aspen Institute for Humanistic Studies as a Senior
Fellow for many years. Jack is committed to the concept of renewable energy, and
as the current President and CEO of the Community Housing Corporation of
Sarasota, Florida, he is actively engaged in encouraging the use of solar
energy, including the use of solar roofing products manufactured by United
Solar. We have greatly appreciated Jack's important contributions, advice and
counsel over the years, and we look forward to a continuing relationship as he
becomes a Director Emeritus.
We have made considerable progress during this past year in the fields that we
have originated and pioneered: nickel metal hydride batteries, thin-film
photovoltaics and phase-change memories and switching. These fields have led to
the creation of new growth industries based on our core products, thanks to the
dedication and hard work of our talented colleagues and employees. We appreciate
the efforts and support of our board of directors whose members contributed to
our progress, and we thank our stockholders for their support.
Stanford R. Ovshinsky Robert C. Stempel
President and Chief Executive Officer Chairman
December 1997
We are deeply saddened that our long-time collaborator and close friend, Jack
Conway, died on January 6, 1998. We were informed of this news as we were going
to press. We will miss him greatly.
Directors and Officers
Stanford R. Ovshinsky, President, Chief Executive Officer and Director, ECD;
Chief Executive Officer and Director, Ovonic Battery; President, Chief Executive
Officer and Director, United Solar Systems Corp.; Member, Board of Managers of
GM Ovonic L.L.C.; Co-Chairman of the Board of Directors, Sovlux
Robert C. Stempel, Chairman of the Board and Executive Director, ECD; Chairman,
Ovonic Battery; Member, Board of Managers of GM Ovonic L.L.C.; former Chairman
and Chief Executive Officer, General Motors
Iris M. Ovshinsky, Ph.D., Vice President and Director, ECD; Director and
Secretary, Ovonic Battery
Nancy M. Bacon, Senior Vice President and Director, ECD; Director, United Solar
Systems Corp.; Director, Sovlux
Umberto Colombo, Ph.D., Director, ECD; Chairman of the Scientific Councils of
the ENI Enrico Mattei Foundation and of the Instituto Per l'Ambiente, Italy;
former Chairman of ENEA (Italian National Agency for New Technology, Energy and
Environment)
Hellmut Fritzsche, Ph.D., Vice President and Director, ECD; retired Professor of
Physics and former Chairman of the Department of Physics, The University of
Chicago
Joichi Ito, Director, ECD; President of: Eccosys, Ltd. and Digital Garage KK,
Japan; President and Representative Director of PSI Japan KK
Seymour Liebman, Director, ECD; Director, United Solar Systems Corp.; Executive
Vice President and General Counsel, Canon U.S.A., Inc.
Walter J. McCarthy, Jr., Director, ECD; retired Chairman and Chief Executive
Officer of Detroit Edison, Detroit, Michigan
Florence I. Metz, Ph.D., Director, ECD; Director, Ovonic Battery; retired
Project Manager for Business and Strategic Planning, Inland Steel, East Chicago,
Indiana
Haru Reischauer, Director, ECD; Director, United Solar Systems Corp.; Author and
Lecturer, La Jolla, California
Nathan J. Robfogel, Director, ECD; Vice President for University Relations,
Rochester Institute of Technology, Rochester, New York; retired Partner, Harter,
Secrest & Emery, Rochester, New York
Stanley K. Stynes, Ph.D., Director, ECD; retired Professor and former Dean,
College of Engineering, Wayne State University, Detroit, Michigan
Ralph F. Leach, Chairman Emeritus, ECD; former Chairman of the Executive
Committee of J.P. Morgan & Company and Morgan Guaranty Trust Company, New York
Jack T. Conway, Director Emeritus, ECD; Chairman of the Community Housing
Corporation of Sarasota, Florida; former Senior Fellow with the Aspen Institute
Robert R. Wilson, Ph.D., Director Emeritus, ECD; Founder and former Director,
Fermi National Accelerator Laboratory; Emeritus Professor of Physics, Cornell
and Columbia Universities; former President of the American Physical Society
Subhash K. Dhar, President, Chief Operating Officer and Director, Ovonic Battery
Marvin S. Siskind, Vice President and Patent Counsel, ECD
Michael A. Fetcenko, Senior Vice President and Director, Ovonic Battery
Ghazaleh Koefod, Secretary, ECD
Roger John Lesinski, General Counsel, ECD
Stephan W. Zumsteg, Treasurer, ECD
Outside Legal Counsel
Jenner & Block
Chicago, Illinois
Outside Patent Counsel
Lawrence G. Norris, Esq.
Bonsall, California
Auditors
Deloitte & Touche LLP
Detroit, Michigan
Transfer Agent
Boston EquiServe LP as servicing agent for State Street Bank and Trust Company
Boston, Massachusetts
800.257.1770
BACK COVER
Picture of Chevy S-10 electric pickup truck
Photo courtesy Chevrolet Division, GMC
On July 4, 1997, Chevrolet's S-10 electric pick-up became the first electric
truck to successfully complete the 156-turn, 12.42 mile road race to the top of
Pikes Peak, Colorado. Ovonic NiMH batteries powered the truck, which was
equipped with a production electric motor but with chassis modifications for
racing safety. The S-10 reached the summit (14,110 ft.) in an EV record time
with 30 percent of the batteries' charge remaining. Driver Larry Ragland said,
"We could have kept going except that we ran out of mountain." This record-
setting run demonstrates the high power and robust design of the Ovonic NiMH
battery.
ECD LOGO
Energy Conversion Devices, Inc.
1675 West Maple Road
Troy, Michigan 48084 U.S.A.
Telephone: 248.280.1900
Fax: 248-280-1456
e-mail: ovonic@aol.com
www.ovonic.com