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Non-Tech : Alternative energy -- Ignore unavailable to you. Want to Upgrade?

To: Jacob Snyder who wrote (7837)	4/13/2010 10:12:26 PM
From: Sam	Respond to of 16955

They may well be borrowing sales from future quarters when German subsidies are reduced. The solars continue to add capacity, but what will happen if (when?) demand slows in one of solar's biggest markets? One or more companies will have to drop out or get badly hurt when the German music is lowered.

To: Jacob Snyder who wrote (7837)	4/14/2010 3:32:39 AM
From: Jacob Snyder	3 Recommendations Read Replies (3) \| Respond to of 16955

Solar Investing Rule #1: The lowest-cost producers will get most of the available profits in this commodity industry. Gross Margins, full-year 2009: 33% FSLR 28% TSL 24% YGE 20% STP 19% SPWRA 15% CSIQ 13% JASO 10% LDK (for 4Q09; can't find full-year results) I've decided to use gross margins as my yardstick, because I can't figure out any apples-to-apples way to compare results, using module or cell manufacturing costs. Do I use just the non-silicon costs, or include the silicon costs? Trina has a $1.24/W manufacturing cost, higher than First Solar's $0.84, but their cell efficiencies are better (18% vs. 11%). So, is Trina or First Solar the lowest cost producer? Every exec, in every earnings call, says they have a brand, or are building one, and I don't think any of them really believe it. Well, maybe Sunpower believes their own hype, which is why they are in trouble. They keep saying "We have a premium product, which deserves a premium price." But Suntech's Pluto monocells are at 19% efficiency today (and they expect 20-21% by end-2010), which isn't far behind Sunpower's 22.5% today. Rule #2: It's a cyclical industry, with high capital costs. Therefore, it isn't safe to buy the stocks, until expectations have bottomed, module prices have fallen to the vicinity of manufacturing costs, and external financing is unavailable for any capacity additions. Oversupply and excess capacity equals falling margins: Solarbuzz says that 9.34GW were produced worldwide in 2009, but only 6.43GW were installed. That implies there are at least 2.91GW of inventory overhang at the beginning of 2010. Sooner or later, that inventory will get dumped on the market. It can't just keep piling up. If about 6.5GW were installed in 2009, and 9GW will be installed in 2010, then the market will grow by 9 - 6.5 = 2.5GW, which is less than the inventory overhang. If solar companies manufacture the same number of MW in 2010 as they did in 2009, then demand will (almost) catch up with production (but we'll still have that inventory overhang). It gets worse. Nobody in this industry is showing any restraint; everyone is adding capacity. Global manufacturing capacity was 17.4GW/year by end-2009, and will be 23.4GW/year by end-2010. There is no reasonable scenario in which 17.4GW are produced and sold in 2010, or 23.4GW in 2011. So there will be lots of desperate companies owning expensive factories, running at capacity utilizations of less than 50%. They will add debt, and do secondary share offerings, and pile up inventory, until banks refuse to lend them any more, and investors stop buying. Governments may delay the inevitable, by making credit available, when it makes no economic sense to do so. So, margins will fall, and balance sheets will worsen, until the weak are allowed to die, and capacity gets shut down. That's how it works in the memory chip market, and that's how it's going to be in solar. As long as companies like LDK can do successful secondary offerings, the sector hasn't hit bottom.