LDK Solar: Not Worth the Risk 26 comments
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LDK Solar (LDK: NYSE) has finally been exonerated, sort of. But I still wouldn’t put my hard-earned dollars anywhere near it.
LDK Solar IPOd in June, and the stock went on a tear, more than doubling its $27 initial price in the next few months. The stock peaked at nearly $74 in September before an accounting scandal sent LDK back under $50.
A former employee told reporters that a large portion of the company’s inventory was actually junk, waste silicon that LDK had no way to process into new wafers.
LDK denied the accusation (at one point the solar cell company even made the claim that just because it couldn’t process the silicon right now, it didn’t mean it wouldn’t develop the technology in the future). And LDK brought in an external auditor to prove it was telling the truth.
As is usually the case in a Wall Street scandal, the actual truth is less important than a few soothing words and a nice soft-shoe to make investors feel better about the situation. And that’s what LDK gave us.
The external auditors swore the solar cell company had just as much silicon as it had claimed. And the stock soared on the news, without anyone mentioning whether or not LDK could do anything with that silicon.
LDK still hasn’t proved it can turn any of that waste silicon, which includes defunct wafers sold as garbage and ingots too impure to be processed by other solar cell producers. But maybe we weren’t supposed to notice that.
If LDK can’t use its recycled silicon, if that former employee was right, then the company’s only advantage is its cheap Chinese labor. Don’t get me wrong, we’ve built plenty of fortunes on a pure-play outsourcing deal.
But that cheap labor doesn’t make up for LDK’s lack of processing know-how. And it won’t prevent the company’s profit margins from continuing to fall as silicon prices grow at an alarming rate in the next few years.
Silicon is already incredibly expensive compared to prices even a few years ago. And solar cell and semiconductor manufacturers are already preparing for a probable shortage. Companies are setting up contracts for silicon years or even decades in advance, as if the stuff was… oil. And as technology puts computer chips in more and more devices in our everyday lives, don’t be surprised if silicone becomes as precious a commodity as oil.
In that environment, I don’t trust a new kid on the block with nothing to recommend it but inefficient business practices and penny-a-day labor.
If you want to grab some gains in the short term, go ahead and jump into LDK Solar, but be prepared to jump back out again within a few months or weeks. If you’re looking for a long-term investment, don’t put money into the stock. It’s not a durable competitor in the silicon wafer industry.
The Chinese government may be able to make LDK last with subsidies, bailouts and “strategic investment”. But that government has no incentive to promote the company, and it has shown no preference toward it so far.
I wouldn’t risk my money on LDK, not even if they paid me.
Disclosure: none
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This article has 26 comments:
The second type of "bad polysilicone" was supposed to be "too old" "virgin polysilicone". Mr. Situ apparently jumped to the conclusion that a lot of LDK's polysilicone in stock was "bad" because he heard one of the manufacturing equipment vendors blame the polysilicone for the problems they had been having in manufacturing. This was a case of Mr. Situ not being very experienced in the nuances of manufacturing. LDK no doubt had the vendors experts in to help sort out the problems LDK was having in manufacturing. What typically happens in this case is that each side finger points at the other until the problems or problems is figured out. There could have been many causes for the problems: 1) vendors sometimes sell you lemons; 2) the new, inexperienced LDK workers were not operating the machinery to best effect; 3) there could have been environmental issues such as temperature and dust; 4) they could have encountered one bad lot of polysilicone (which doesn't necessarily have any bearing on other lots); or 5) LDK could have had a lot of bad "virgin polysilicone". The external audit seems to have ruled out this last possibility.
The only issue analysts are now compaining about is the process for using the TCS in the new polysilicone plants, specifically the larger plant. Apparently there will be more costs associated with TCS (more TCS needed and more TCS disposal issues and costs) if this is not recycled for further use. Apparently MEMC is able to do this. LDK has made no comment that I know of about exactly how they are going to address this problem. One thought which pops into mind is that LDK may be planning to skirt patent infringment on MEMC's designs in this area???? Or perhaps they simple have not completely decided how they are going to approach this issue. They may go for the brute force method to start in order to get the plant running quickly. Then they may, when the rest of the business is not waiting on their progress, try to address the issue of recycling the TCS.
The numbers on LDK are great. It gives every indication that it will be a hugely successful company. LDK seems to be executing their plan outstandingly. They simply have the normal growing pains of any startup. From what they have done so far, including their conduct in the recent inquiry, LDK has given every indication that the company is very worthy of long term investment.
She wrote a bashing piece on LDK a while ago and I can see she copy/paste parts into this supposedly fresh opinion. Well, wombat...
it's one of the growing numbers of absolutely useless and extremely poorly written articles on seekingalpha that is solely transporting a very biased opinion which is based on zero facts and zero research and investigation. the girl obviously didn't even remotely try to look into the matter.
if it weren't published on seeking alpha one would think it was just one of the myriad daily yahoo message board crap postings
And that seekingalpha acutally paid Stephanie Grimmett for writing this worthless crap!
Folks who approve shoddy journalism should at the very least have their pay docked.
Garbage!
This is a case of ignoring fundamentals, only poor investors and analysts follow a company this way. Too many poor investors around making bad investments because they ignore fundamentals, exactly the reason for the subprime mess.
"I wouldn’t risk my money on LDK, not even if they paid me."
Where was that coming from? I understood she has an agenda, but at least try to be tactic and disguise a little bit instead of just telling the world "I don't like LDK, I know I'm stupid but I don't care"
cant believe this gets fed to yahoo finance.
scott w
growthportfolio.ning.c...
investment social network
Seeking Alpha, you have built a valuable reputation by publishing articles which are almost always rich in facts and follow through rationale. These have often exposed the fallacies propagated by the mainstream financial media. Please do not dilute your standards by allowing access to empty heads, egotists or liars that hide behind distortions of truth. This is happening at Motley Fool - do not let it happen to you.
Very sorry and sad for this service.
The comments,... they are great !
If you don't know about materials and this technology, go and try something else, but don't spend time and space on this type of unsupported articles.