Mike Ahearn, chairman of the world’s largest manufacturer of solar panels, had every reason to party in September. That’s when his company, First Solar, based in Tempe, Ariz., was picked by China to build what promises to be the world’s biggest solar-electricity plant: a Manhattan-size facility in Inner Mongolia providing 2 gigawatts of power, about twice the size of a large coal plant or average nuclear power station. But the Chinese facility will take years to build, and the party buzz subsided pretty quickly. The next month, Wall Street analysts downgraded First Solar’s stock after the company missed its third-quarter revenue target. "I think the Wall Street perspective is pretty short-term," says Ahearn.
That’s true, but it’s also true that, while photovoltaic cells that turn sunlight into electricity may play a potentially vital role in weaning the world from fossil fuels, a transition will take decades — and the business metrics surrounding the solar-power industry currently are anything but bright. After a period of rapid expansion, panel manufacturers today are reeling from a pronounced supply surplus, falling prices and stagnating sales. In 2009, industry revenue plunged by nearly 40% to about $25 billion from $40 billion the previous year, according to BankAmerica Merrill Lynch alternative-energy analyst Steven Milunovich. Solar-panel output far outstripped demand last year; manufacturers made 66% more product than they were able to sell, estimates research firm iSuppli located in El Segundo, Calif. Some analysts believe the dismal conditions will persist into 2011, setting up marginal players worldwide for failure. "A large number of manufacturers will not survive," says Paul Semenza, an analyst with research company DisplaySearch, based in San Jose, Calif.
The global glut has been building for a number of years as hundreds of solar cell and panel start-ups, attracted by a potential boom in alternative energy as oil prices climbed and by government solar-energy-subsidy programs, swarmed into the market. Because the industry’s barriers to entry are relatively low — crystalline solar cells are rudimentary semiconductors that are comparatively easy to make — the number of solar-panel and photovoltaic suppliers mushroomed nearly tenfold from 2002, when there were about 80 manufacturers, to somewhere between 500 and 800 today, according to iSuppli. In China and Taiwan, whole solar-energy sectors sprouted almost overnight. Stefan de Haan, an analyst for iSuppli, says industry profit margins,…
Industry fundamentals are looking pretty bad for solar.
After enjoying a few years of tight supply, far too much solar production capacity is coming online as a result.
Government policy hasn’t helped either. For 2009, half of total solar production might not even be sold due a change in government policy from a major solar buyer, Spain.
WSJ: Spain accounted for more than 40% of all new solar panel installation globally last year, installing 2.7 gigawatts — five times the 2007 figure — out of a global total of 5.6 gigawatts. According to Spain’s photovoltaic industry association, Asif, the country’s market was worth €16.38 billion ($23.24 billion). This year, with cuts to aid and a more complicated application process, there has been no new installation in Spain.
Other countries are introducing aid to the solar sector, particularly the U.S. But the new U.S. measures aren’t expected to arrive in time to shore up demand this year. And while China has pledged support for the solar industry via economic-stimulus packages, support is likely to primarily benefit its own low-cost producers that have easy access to credit from state-owned Chinese banks.
Even based on bullish Barlcays numbers shown below, supply is likely to oustrip demand by 30-40% for many years. This could collapse prices down to merely the cost of production… or worse.
Sahm Adrangi: Currently, there is too much supply in all the steps. There is too much polysilicon. There are too many wafers. There are too may solar cells and there are too many modules. The oversupply began in 4Q08, and has only become more exacerbated as time has gone on. Polysilicon prices have crashed from about $400/kg to about $70/kg. Marginal cost is estimated to be around $35 to $45/kg, and I’ll bet that prices will get there soon enough.
Perhaps companies such as Suntech (STP), Yingli (YGE), SunPower (SPWRA), and even First Solar (FSLR), despite its technology advantage, could be in for a long, nasty price war.
I’ve been a long time investor in the solar space (circa late 06) and one thing that has really irked me over the years is the complete lack of differentiation. Much like the market as a whole nowadays, its "all or nothing" in this space. The one exception has been First Solar (FSLR) – an American "thin film" (different technology than most solar companies) producer. The Chinese names have especially all been thrown together in one pot and when its time to run up solar, they all go up together (in varying degrees) and when solar is out of favor they all get pole axed. Hence doing any due diligence is really a waste of time.
Yingli Green Energy (YGE) and a company that has cost me many real (and virtual) dollars over the years, Trina Solar (TSL) are 2 of the Chinese solar markets with good size, and the most integrated production models. This should have differentiated them over the years – but as I said above, not in American investors eyes. We like "big easy to understand, sweeping themes" – i.e. oil up, solar good. And that’s as comprehensive as it seems to get.
We are seeing some nice action in both these names today, on the back of an analyst report which is alluding to the advantages the two companies have. Now that silicon (which is the main cost component on the material side) has swooned after bottlenecks plagued the industry for 3+ years, the other main cost is labor. And you are not going to compete with the Chinese on labor costs…
Both Trina Solar (TSL) and Yingli Green Energy(YGE) shares are trading higher today following upgrades by Morgan Stanley analyst Sunil Gupta. He thinks both companies are going to take market share in the solar sector from U.S.-based and European rivals. Here are the details
First Solar (FSLR) gave an "impressive" presentation yesterday at its investor/analyst meeting about the future of its business, but it wasn’t enough to make analysts feel better about the stock.
We’ve received analyst reports morning from FBR, Deutsche Bank and Cannaccord Adams. Here’s their summaries:
Canaccord Adams downgraded from Buy to Hold with a $180 price target with a 25x multiple of its 2009 EPS estimate.
IMPACT: Modestly negative. First Solar remains the leading solar company, in our opinion; however, the company issued fairly ambitious targets with respect to the project pipeline and technology advances, and a lack of visibility into further positive catalysts remains. Additionally, the company’s business model and financial model are changing fairly significantly. As we suspected, the company’s new focus will lower GMs but likely increase income in absolute terms. While the company has finally properly set expectations, we believe that the decreasing margin profile may turn some investors off until the higher income and cash flows actually materialize.
FBR has an underperform rating with a $110 price target with 5X EV/sales and 12x EV/EBITDA, versus the its peer group (SPWRA, STP, TSL, YGE) average of 1.5x EV/sales and 8x EV/EBITDA.
We walked away from the First Solar (FSLR) analyst event impressed with the quality of presentation and the company’s long-term vision, which was communicated clearly, We continue to believe that First Solar is among a few industry leaders that have sound long-term and short-term strategies based on the realities of the industry. However, in light of the fact that the company has now publicly acknowledged that the business model is changing (revenue mix has changed from one item to three separate items), we think there is an increased probability of a capital increase (to beef up the balance sheet), while challenges remain in the near term (excess inventories, customer insolvency, tight credit market) that are the most important factors, which, in our view, will pressure the stock for the remainder of CY09. Additionally, we walked away feeling incrementally confident that the consensus estimates are too aggressive and do not reflect the realities of the industry.
Deutsche Bank maintains its hold rating raising its price target to $170 from $167, with a 20x C2010 EPS valuation.
Someone is trying to knock First Solar (FSLR) off its perch by tipping investigators that its OptiSolar acquisition might not be above board.
A private citizen told California investigators to check out the land rights First Solar said it acquired when it paid $400 million in stock for OptiSolar’s project pipeline. When the deal was announced, First Solar said it received "strategic land rights of approximately 136,000 acres." In reality, OptiSolar only had applications for the land rights.
Applications are considerably less valuable. If First Solar labeled those applications as assets, and priced them into the acquisition, then the company may be in violation of the law. At this point, it’s unclear if First Solar did or did not label them as assets. It’s also unclear if it’s illegal to price them into the deal, reports Dow Jones.
In spite of the haze around this minor infraction, it’s receiving a decent amount of coverage. Major news outlets are reporting on it as well as most energy/solar focused blogs.
Our intial reaction was that this was much ado about nothing. The Bureau Of Land Managment in California is worried about speculators paying for applications, holding them, then selling them to developers at higher prices. We don’t consider First Solar a speculator, so we thought it was long shot that they were violating the law.
While developing a project is not First Solar’s typical operating pattern, it is a direction the company is heading. In the relase announcing the OptiSolar acquisition, First Solar mentioned other construction projects it was working on. For this reason, we don’t think First Solar plans on just selling off its application permits.
We are curious about the identity of the "private citizen" that tipped investigators. After news broke that First Solar was under investigation, Earth2Tech reported that:
A couple weeks ago we received an email query from an exec at an environmental group wondering about the legality and ethics of solar maker OptiSolar incorporating yet-to-be-approved Bureau of Land Management land applications into its price when solar giant First Solar agreed to acquire the thin-film PV company back in March. I’m not sure how legal it is, I told him, but I would assume
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
Is it time to short the dollar? Saxo bank chief economist Steen Jakobsen thinks so. Via email from Steen ... What is wrong with changing your mind because the facts changed? But you have to be able to say why you changed your mind and how the facts changed. Lee Iacocca
My biggest call all year has been for global lower rates, and in particular lower core country (Germany, Denmark, and US) yields led by this magic trinity of factors:
1. China and Asia rebalancing growth away from nominal to quality growth 2. US current account deficit reduced by 50% (see chart below) 3. A Europe where Germany will pay the price for the first two factors with a lag of six to nine months.
The headline call was and remains that Germany will be close to recession by Q4-2014 or Q1-2015 setting up a desperate ECB and a E...
The Department of Energy's Energy Information Administration (EIA) data on volume sales is over two months old when it released. The latest numbers, through mid-May, were published today. However, despite the lag, this report offers an interesting perspective on fascinating aspects of the US economy. Gasoline prices and increases in fuel efficiency are important factors, but there are also some significant demographic and cultural dynamics in this data series.
Because the sales data are highly volatile with some obvious seasonality, I've added a 12-month moving average (MA) to give a clearer indication of the long-term trends. The latest 12-month MA is 8.8% below the all-time high set in August 2005, a new interim low.
Options volume on the provider of futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, metals and alternative investment products is well above average on Thursday morning, due in large part to a sizable put spread initiated in the 19Sep’14 expiry contracts. Shares in CME Group (Ticker: CME) are up slightly on the day, trading 0.25% higher at $74.34 as of the time of this writing.
The largest trade on CME today appears to be a bear put spread in which roughly 1,500 of the 19Sep’14 74.0 strike puts were purchased at a premium of $1.44 each against the sale of the same number of t...
As many investors enjoy the final weeks of summer, some optimistic bulls seem to be positioning themselves well ahead of Labor Day in anticipation of a fall rally. Indeed, last week’s action was impressive. After only a mere 4% correction, investors continued to brush off the disturbing violence both at home and abroad, and they took the minor pullback as their next buying opportunity. But was that really all the pullback we’re going to get this year? I doubt it. But I also believe that nothing short of a major Black Swan event can send this market into a deep correction.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then ...
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Author Helen Davis Chaitman is a nationally recognized litigator with a diverse trial practice in the areas of lender liability, bankruptcy, bank fraud, RICO, professional malpractice, trusts and estates, and white collar defense. In 1995, Ms. Chaitman was named one of the nation's top ten litigators by the National Law Journal for a jury verdict she obtained in an accountants' malpractice case. Ms. Chaitman is the author of The Law of Lender Liability (Warren, Gorham & Lamont 1990)... Since early 2009, Ms. Chaitman has been an outspoken advocate for investors in Bernard L. Madoff Investment Securities LLC (more here).
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Well PSW Subscribers....I am still here, barely. From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.
First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices. Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment. Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer. For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...
I just wanted to be sure you saw this. There’s a ‘live’ training webinar this Thursday, March 27th at Noon or 9:00 pm ET.
If GOOGLE, the NSA, and Steve Jobs all got together in a room with the task of building a tremendously accurate trading algorithm… it wouldn’t just be any ordinary system… it’d be the greatest trading algorithm in the world.
Well, I hate to break it to you though… they never got around to building it, but my friends at Market Tamer did.
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