The doubling of capacity and halving in price that Gordon Moore predicted for silicon chips 45 years ago continues to roil new tech markets. The latest to get hit is the market for solar panels. While labs are turning out innovations for plastic panels, print-on panels and panels that are 20% efficient, there is a growing glut of the older stuff, hard panels made with polysilicon, the same technology used to make chips.
History teaches that those companies that weather these storms and keep investing in new technologies will prosper as they scale. Getting to scale will give them room to maneuver and protection against new competitors. So what investors should be looking for at this point may not be growing profits, but simple survival and growth.
Canadian Solar (CSIQ) is among those holding up. Despite the name, this is basically a Chinese production house. The headline is that it missed its number badly, as Tate Dwinell notes, but was profitable, increasing shipments 58.7% quarter-on-quarter. It expects to ship between 1.2-1.3 GW of panels for the calendar year.
Those expecting quick and rising profits were disappointed, but that's a hard thing to expect in such a new and fast-changing arena. While a public investor may look at these kinds of results and blanch, my guess is they will make venture capitalists and private investors smile.
First Solar (FSLR) which is an American company but not really a panel company (it makes its gear from cadmium telluride), is also down today on a job hop and a downgrade from Goldman Sachs, The latest price action puts First Solar's P/E at 16.90, closer to the 15 P/E of Apple Inc. (AAPL), and that may not be a totally unfair comparison. Like Apple, First Solar uses a completely proprietary technology, which it has succeeded in scaling long before rivals. That can be both good and bad, because unless it can keep scaling that technology, it could be passed by rivals scaling other technologies together, just as the iPhone has been passed by the open source Android (GOOG) phone.
What has the bears running over the space is the fact that subsidies are being ended by governments which feel they can no longer afford them. But people like First Solar CEO Robert Gillette recently called this a good thing, because they reduce speculation and drive the industry's move toward cost parity with other forms of grid energy.
So the real action in solar may remain in small start-ups like HyperSolar, ticker symbol HYSR, whose use of plastics could create the next revolution in cost reduction As its CEO told AOL Energy recently, "When we prove to the world that we can reduce the cost of solar by 35%, it will no longer be a question of whether to purchase solar, but if we can manufacture these fast enough."
I think even the bears might agree with that.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.