Solar PV Module Revenues and Volumes Bottomed in Q1

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Includes: JASO, LDK
by: E4 Capital

The solar energy sector, measured by revenues, appears to have hit bottom in calendar Q1. We expect that when full Q2 results are in they will show a strong rebound (better than 30% in aggregate) off the Q1 low, although the Q2 level is unlikely to recover all the way to the Q4:08 level.

Only about 5 of approximately 25 public solar companies that report quarterly results have reported their calendar Q2 results to date (8/11/09). After reviewing their results and looking at the consensus expectations for the remaining 20 names, we concluded that most of the remaining companies will achieve Q2 revenues above the Q1 trough.

Another upswing is getting underway. The peak quarter for solar PV revenues was Q3:08, or about a year ago, ending a remarkable run up driven mainly by extremely generous feed-in tariff subsidies in Germany and Spain. Volumes of panels installed roughly doubled from 2007 to 2008. The Spanish subsidies were capped after it became apparent that country could not afford the original subsidy program, and Germany made changes to phase down its subsidies more rapidly. Mainly due to the Spanish program, and aggravated by the global recession and reduced credit availability, prices and volumes fell sharply in Q4 and again in Q1. The solar companies were slow to react to the downturn, perhaps because so many of the companies in this sector are newly formed and have yet to experience a downturn.

Capital spending continued to grow in Q4 over Q3 and did not begin to drop until Q1. Inventories rose modestly in Q4 and especially steeply in Q1 as companies were slow to curtail production and cut prices. Prices for modules and cells have fallen by on the order of 30% to 50%, and we believe they are still eroding. These price cuts have triggered some demand growth as solar energy has become more price competitive in areas with subsidy programs less generous than Spain and Germany (e.g. the US).

The capacity build up in both the principal raw material (polysilicon) and the various conversion steps (wafers, cells, and modules) was such that we do not expect producers to be able to raise prices for awhile.

Two of the hardest hit solar companies will report on 8/12/09. Consensus estimates look for a nearly 100% revenue gain Q1 to Q2 at JA Solar (NASDAQ:JASO) to US$67 million (still well below the year-ago level of $180 million). There is unusually wide variability in the estimates for JASO though. Revenue at LDK Solar (NYSE:LDK) is expected to fall about 21% from Q1:09 to US$225 million, however. The company had issued a press release on 7/23 saying it expected revenues of $225-$235 for the Q2 and would be taking an inventory write off of $150 to $170 million. Before the 7/23/09 guidance, the company had estimated revenues of $215 to $225 million. The weak LDK results have thus been well telegraphed.