Jefferies is out with an interesting call, saying they believe that global solar module ASP is set to decline by 15% in 2008E due to the rising percentage of sales to mature and lower priced solar markets. They expect that solar module supply will expand from 2.5 GW in 2007E to 4.6 GW in 2008E. Most of this increased supply is driven by new silicon capacity coming on line in the coming months.
The firm expects that the leading solar markets of Germany, Japan and (to a growing extent) the USA will have to absorb a significant portion of this new supply. These markets already have the lowest module ASPs and are the most price sensitive which will force further price reductions in order to stimulate demand.
Jeffco expects that the pain of this price erosion will be shared unequally throughout the solar value chain. Their base assumption is that a 15% module price decline will lead to a 10% decline in cell prices and a 5% decline in wafer prices while silicon price will be unaffected. Margins will be most affected in the module and cell production segments.
Notablecalls: The consensus estimate for solar module ASP decline for 2008 is around -5%, which certainly makes Jeffco's call an out-of-consensus one. I'm not sure if this call is an outright actionable one, but would not be surprised to see weakness is many of the high-flying solar names in the near term.