By Ucilia Wang

DayStar Technologies (DSTI) has been struggling to generate sales, and also to keep its CEO.

By Michael Kanellos

Sometimes, it doesn't pay to be first.

DayStar Technologies (DSTI), one of the first companies to jump into copper indium gallium selenide (CIGS) solar cells, has sold off "non-core" assets in its Halfmoon, N.Y. office, where the company conducted much of its R&D, to Veeco Instruments. DayStar didn't say how much it would be worth, but said it would cut about $2 million from the operating budget. DayStar retained rights to its intellectual property.

Solar shares, which in recent weeks have staged a ferocious rally, are getting hammered Monday, as investors take profits amid concerns about pricing and demand in the sector. As I noted last week, even some of the smallest and most speculative solar names had taken off, making the sector look more than a little frothy. But with some smaller solar players running into trouble - Hoku on Friday said it might run out of cash before it can complete a planned polysilicon factory - the stocks today are losing ground.

In a research report late Friday, FBR Capital analyst Mehdi Hosseini said that product prices in the sector are falling more than expected. He says that while investors are anticipating “a hockey-stick shaped demand uptick in the U.S., China and other emerging countries,” he instead sees a slow roll-out of subsidies, tightened terms from financiers and over-hyped news items, some from untrustworthy sources.

As is the typical situation as oil goes up, airlines go down - we said this would happen even though Allegiant Travel (ALGT) managed to make money last year at $140+ oil. This is just how the program trades work, so I continue to build a position here, essentially every $2-3 down, I am adding to this stake. I hope to be able to buy down there at $38, but thus far I've pushed the position up to a 4% stake with a series of buys Wednesday and Thursday. The stock is dirt cheap but people continue to pile into forward 30, 35 PE stocks because

that's where the "hot money" is.

I am now going to be weighing more heavily on the short side of the book-building; on that side from here (920) to S&P 975 if necessary. It "feels" like late February but in inverse - no one wants to be short (long back then) and anyone who thinks about it is an idiot - as the market only goes in one direction (down then, up now).

I have two specific stocks in the solar space: DayStar Technologies (DSTI), and Ascent Solar Technologies (ASTI), that when they run almost always mark the height of insanity - both are exploding now. As countless 2nd and 3rd tier auto suppliers go out of business (government is supporting the 1st tier) this summer and fall, restaurants and shops around those suppliers die, and auto dealerships close their doors - we'll still have our 0% car financing, $6000 government supported Chrysler rebates, and 4.7% no money down FHA loans to get us through. So don't despair - GDP should explode higher on these figures as it did in Q2 2008 with a tiny $170B Bush rebate... that's peanuts to what we are going to have now. Countless unemployed will enjoy driving around listening to the stock market racing up on their way to the mall.. or to the grocery store - preferably Whole Food Markets (WFMI) of course.

F3Q09 Earnings Call

November 13, 2008 at 5:00 pm ET

Q2 2008 Earnings Call Transcript

August 6, 2008 5:00 pm ET

Business Update Call

July 8, 2008 5:00 pm ET

Solar stocks had another blowout week led by LDK Solar’s (LDK) 25% gain. First Solar (FSLR), Sunpower (SPWR) and Suntech Power (STP), what I consider the first-tier solar companies, all had a gain close to or above 20% for the week.

Also, interesting to note is that First Solar is now the only Solar stock that has a positive gain in 2008. Sunpower (SPWR) and Suntech Power are still about 30% and 40% down in 2008 respectively.

Solar stocks capped a fantastic week with every solar stock except one (WFR) clocking a double digit gain. This seems like the best week solar stocks have had this year but are still far off from where they started in 2008.

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There is no good way to put this but solar stocks have been beaten down pretty badly since the start of 2008. There was some irrational exuberance when it came to solar stocks in 2007. This downtrend was inevitable, but the overall market conditions might have made it worse than it should have been.

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I've made my case for the difficulties in investing in the solar sector the next few years until the "great shakeout" [The Long Term in Solar]. In fact, for the fund, my 2 biggest money losers thus far are in fact solar stocks, so sometimes I should listen to my own advice better. While I do believe speculators will be back in these stocks once the market stabilizes and we'll see some tremendous shorter term moves, from what level is the open question.

I do believe many investors have been looking at the "very long term", in which solar is obviously a viable alternative, and missing the real potential problems in the "near to middle term". I also believe many investors simply miss the sheer number of non public panel makers out in Asia; people newer to the sector think the 10 or so publicly traded solar makers are the majority of the industry... unfortunately, for competitive reasons, there are simply too many players in what is still a limited end market.... many many private companies.

Last week I asked 'NCN Solar', a trader closely following and trading the solar space, to give us an overview of the current state of things. I talk to NCN Solar almost every morning, going over the most important developments - a great help to understanding this rapidly changing sector. His overview follows.

• • •

Investors have been fretting about a U.S. recession for months, and recent polls suggest a heightened level of economic anxiety among Americans. Assuming that we go into a mild recession, is this the time for solar investors to jump ship? To the contrary - a recession might provide some attractive opportunities in the solar sector.

A recession may boost the supply of polysilicon

I've recently gone from near-term bullish to bearish on the PV stocks based on two trends I see emerging for 2008-2010. First, that cells and panels will be in major oversupply by year-end 2008 and second, that demand is set for a pause due to declining or delayed incentives in Germany, Spain, and the US.

I've compiled a table of YE capacity for 2008 - 2010 for over 90 manufacturers of solar cells (see bottom of article), indicating my source for each company's number. A solid starting source is the Lehman Bros 11/1/07 report initiating coverage on the sector. However, that report is already outdated and its cell capacity data somewhat incomplete to begin with; I've relied on more current data from a wider set of sources including company earnings reports, presentations, websites, or other press articles.

What can you say about a sector when the worst performing stock clocks a gain of 50% in 2007? I am obviously overlooking the the one negative in the chart below courtesy of Energy Conversion Devices (ENER).

Crude Oil appreciating 78% only helped the cause for these companies in 2007.

I realize most of the stocks were up this past week but just look at the Solar Sector was a whole. WOW!

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If you are invested in solar energy or are thinking about it then it’s important to get a clear picture of the polysilicon supply in the coming years. Right now the only thing stopping solar cell/panel manufacturers to increase production is the shortage of polysilicon.

According the Albany Times Union,the Halfmoon, NY-based solar cell manufacturer is seeking as much as $30 million for a new manufacturing facility in Malta but has said it needs funding just to keep operating past the first quarter of this year.

A new manufacturing facility is key to DayStar's business plan. The company lost nearly $15 million through the first nine months of 2006 and needs increased manufacturing capability to boost sales and turn a profit.

Founder John Tuttle, who brought the company from California to Saratoga County in 2004, was replaced as CEO by Stephan DeLuca in November. Randolph A. Graves, Jr., a member of DayStar’s board of directors since October 2003, was elected by the board of directors to serve as Chairman of the Board, replacing Tuttle, who will remain a member of the board until the next annual meeting. Tuttle resigned as Chief Development Officer of DayStar Technologies, Inc. to pursue other opportunities. The company is operating without a chief financial officer.