ANALYST: Morgan Stanley Says Softer Margins In 2H For A123 Systems Highlight Difficulty

Morgan Stanley analysts said that softer margins in the second half of the year for A123 Systems Inc. (NASDAQ:AONE) relative to their expectations highlight the difficulty in ramping ahead of volumes that may or may not materialize and are difficult to predict.

Analysts Robert Wertheimer, Joshua Paradise and Ravi Shanker said, "AONE reported 2Q10 EPS of $(0.33) vs. our estimate of $(0.27) (consensus $(0.27)) and $(0.27) LY. Revenues were $22.6 mn, below our $25 mn estimate and below $23.2 mn LY. The gross margin was -13%, not much different from last year, and worse than our -3% estimate. Positives were an EV win, further validating A123's chemistry in EVs not just hybrids, and progress towards production on commercial vehicles. Details on the auto OEM are scarce, and it's early to say this win will be a major platform. Negatives include the revenue miss and margin commentary in 3Q-4Q10. AONE attributed the miss to grid shipments, which will be more in 1H11 than 2H10."

The bank sees a fiscal 2010 loss of $1.19 per share and a fiscal 2011 loss of $0.15 per share.

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