Jack Yetiv

More Downside Ahead for Solar - Barclay's

Although the analysts are routinely next-to-useless, there is one part of the above that bears careful watching and which I think will be proven valid. Recall that several of these companies announced significant upside earnings surprises in previous quarters due largely to big Euro-based forex gains.

Given what the Euro has done versus the dollar in the past few months, investors should not expect any forex gains in Q3 (and probably even less so in Q4) and that could MATERIALLY impact earnings for CSIQ, STP and others.

In contrast, the strengthening dollar should actually HELP TSL's earnings in Q3 and Q4 because it uses the dollar as its functional currency. At the very least, the dollar's recent strength should limit (and probably eliminate) the forex losses that hurt TSL's Q1 and Q2. Indeed, TSL might even report a bit of a forex gain. Since these forex gains and losses can amount to 20-30 cents per share, their impact on stock price can be quite significant.

As to fundamentals of the solar industry, here are my brief thoughts (I will expand on these in an article at the end of November):

1) World demand will continue to be robust, largely because of the $17 billion renewable subsidy passed as part of the $700 billion bailout.

2) Polysilicon prices will drop 15-20% in 2009 compared to 2008 (and this has already begun in earnest in the spot market, although note that much poly is contracted for at agreed prices, so spot prices won't impact all poly bought).

3) ASP's will be 10-12% lower in 2009 versus 2008 (this has also begun).

4) Overall margins in 2009 will be maintained, but earnings growth will slow down for most companies from +50 to 100% to "only" 30 to 60% as production ramps slow and income taxes increase.

Jack Yetiv