Investment summary
􀀗 Limited availability and increasing cost of capital, overcapacities
and the resultant pricing and margin pressure could lead to
industry consolidation starting in 2009
􀀗 Strong balance sheets and solid financed capex plans are key,
given rising working capital needs and closed capital markets
􀀗 However, solar is still a secular growth story: we expect grid parity
to be reached first in Italy (2011) and California (2012)

Lowering photovoltaic market forecasts
Despite favourable changes in the US and less uncertainty in Spain, which should have been positive for
solar companies globally, solar stocks have been hit severely in the last months. On top of potential
overcapacities, pricing pressure (we forecast system ASPs to decline approximately 20% in 2009) and the
resultant reduction in margins, the market factors in a potential lack of capital and project finance as well
as increasing cost of capital. Debt and (tax) equity markets are currently virtually closed and there is no
indication of how long this situation will last. As a result, growth expectations in the solar sector have
deteriorated in recent weeks as expansion plans and development projects could not find financing.

As the photovoltaic market is still IRR driven and solar installations are, in general, highly leveraged
projects with around 70% to 80% debt on average, we expect the ongoing credit crunch to result in the
postponement of projects and to put further pressure on system prices: We estimate that a 1 percentage
point increase in the cost of capital roughly requires a 4 percentage point decline in the system price in
order to keep IRRs at a constant 8% for German large-scale systems. In addition, we believe the
deteriorating consumer confidence and an increasing savings ratio will weigh on the residential solar
demand especially in Germany and the US. Consequently, we have lowered our global PV demand
forecast to 5.5 GWp in 2009 in our base scenario (4 GWp in our pessimistic scenario) and 7.5 GWp in
2010 (previously 6.2 GWp and 9.3 GWp, respectively).
Our ideas for our expected market environment
Focus on the beginning of the value chain and secured distribution channels
Notwithstanding short-term concerns, we still believe that solar is a long-term secular growth story,
mainly driven by increasing global energy demand, carbon market rules, climate change initiatives along
with the governmental support for these, the importance of energy security, volatile fossil-fuel prices and
an improving cost position for solar power: we expect the earliest grid parity will be achieved in 2011 in
Italy and in 2012 in the US (California), and (see page 14) the solar industry to become unsubsidised only
two or three years from now.
However, in the short-term, we expect that the credit crisis and the deteriorating economic environment
will fuel consolidation in the sector. While we forecast margin erosion through the whole solar value chain,
we believe investors should focus on the beginning of the value chain given longer-term contracts, more
stable cash flows and the tighter supply/demand balance. We believe undercapitalised solar cell companies
and new entrants (eg, non-differentiated turnkey buyers) will suffer most due to overcapacities, and lack of
pricing power, know-how, scale (resulting in high fixed costs per Watt) and differentiation.
Our balance sheet test (see page 18) identifies potential winners and losers in the current financial market
conditions. We favour companies with fully-integrated business models which are less dependent on
suppliers and customers, solid balance sheets with no large maturities in the short term and good
operating cash flows which could finance their growth, increasing inventories and working capital needs,
sustain their margins for a longer time and enable them to take an active part in the potential industry
consolidation beginning 2009. In our view, secured distribution channels for every part of the solar value
chain are key to protecting against price pressure and margin erosion.
However, we expect corporate newsflow in the sector will get worse before it gets better and we don’t
believe that any stock will be immune from an overall industry slowdown. In such an environment, within
our coverage universe we prefer SolarWorld (Overweight (V)), Pfeiffer Vacuum (Overweight (V)) and
Phoenix Solar (Neutral (V)) as we expect them to be most resilient. While we believe some of the solar
stocks offer a medium-term recovery story in the next 12 to 18 months, we would delay getting exposure
to this until market conditions improve, which we do not expect until late Q2 2009 at the earliest.
Remain broadly cautious on solar equipment suppliers
While we already had a cautious view on the solar equipment sector due to overcapacities we have now
become even more reserved. In our view, the solar equipment market is turning into a buyer’s market

with increasing price pressure given the limited number of projects. Furthermore we expect the
companies to struggle with high fixed costs following the strong growth and recent acquisitions resulting
in margin moderation. We expect that a continued credit crunch will dampen growth prospects in the
coming months as capacity expansion plans are likely to be reduced or postponed. We especially see the
risk that small and less-capitalised cell and silicon manufacturers, as well as new entrants, whose capex
and ramp-up costs were to have been funded through future capital increases and the debt markets, will
have to reduce, postpone or cancel their plans. This uncertainty results in low visibility on order intake.
We do not expect book-to-bill ratios to improve clearly above 1 until Q4 2009 at the earliest. We expect
companies to present rather weak Q4 2008 results and disappointing 2009 outlooks in the coming weeks.
Consensus is still looking for average top-line growth of 8% in 2009 and 7% in 2010 as well as average
EPS growth of 8% and 6%, respectively. Taking into account that 2008 was another record year in respect
of earnings and sales growth for all equipment suppliers, we see the risk that current consensus
expectations are still too high. Our new 2009 EPS forecasts for the equipment suppliers are roughly 20%
below consensus forecasts.
Our preferred name in this sector is the Swiss-based wafer equipment manufacturer Meyer Burger on
which we initiate coverage with a Neutral (V) rating and a CHF100 target price. We also regard Pfeiffer
Vacuum, Overweight (V), as a more defensive play with some exposure in the solar market, given its
above-average margins, strong average FCF yield and attractive dividend yield.
We see downside potential for Centrotherm, which we rate Underweight (V) with a EUR14 target price,
given still optimistic consensus expectations, execution risks in the new silicon segment and the thin-film
turnkey business as well as potential order delays and cancellations and negative effects from the recent
integration of its sister company CTTS. We expect 2009 to be a very challenging year for Manz
Automation, which we downgrade to Underweight (V), given the cyclical downturn in its LCD segment,
a fall in demand for its solar equipment and lower sales contribution from its Asian subsidiary and
resulting margin moderation. We reiterate our Underweight (V) rating on SMA Solar and downgrade
Singulus to Underweight (V) given a continued weak optical disc business.

目录

Quo vadis, solar? 5
Balance sheet check: cash is
king 18
Gloomy outlook for equipment
players 20
Company profiles 29
Centrosolar 30
Centrotherm PV 34
Conergy 38
Manz Automation 42
Meyer Burger 46
Pfeiffer Vacuum 53
Phoenix Solar 57
Q-Cells 61
Roth & Rau 65
Singulus 69
SMA Solar 73
SolarWorld 77
Solon 81
Wacker Chemie 85
Disclosure appendix 93
Disclaimer 96
Contents
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