Darwin’s Theory - Survival of the Fittest
􀂄 Favor best in class conversion costs, strong brand and solid balance sheets
Our research suggests solar stocks with the lowest conversion costs at each part of
the food chain can withstand pricing pressure the best. We estimate brand strength
will be important in the retail/residential segment especially in Germany where
local suppliers may have an advantage. We believe companies that have net cash
will be able to take market share from those with weak balance sheets.
􀂄 Upgrade SunPower and Motech; Downgrade Evergreen and SAS
Given our proprietary research regarding (1) conversion costs, (2) brand strength
and (3) balance sheet quality, we upgrade SunPower (strong brand in the growing
US market) and Motech (low cell conversion cost) to Buy ratings. We downgrade
Evergreen to Sell given high conversion costs and limited balance sheet flexibility.
We see limited conversion cost advantages at SAS and downgrade to Neutral.
􀂄 Lowering module price KGI by -17%, but increasing global solar demand
Our new 2009 global solar module price is $2.50/watt compared to $3.01/watt
previously as we estimate 2GW of module oversupply. However, given lower
prices, we estimate higher demand in the U.S., Germany, and Italy and raise our
2009 and 2010 estimates to 6.4GW and 9.5GW versus 5GW and 7GW previously.
􀂄 Most Preferred: Wacker, SolarWorld, First Solar, DC Chemical
We prefer Wacker given its robust poly contracts, strong execution and solid
balance sheet and SolarWorld given its strong brand in Germany. We favor First
Solar as it likely remains the lowest cost producer. We favor DC Chemical as new
capacity likely drives earnings in 2H09, and weak Won should help lower costs.

Contents page
PM Summary: Key Takeaways 3
— Survival of the Fittest............................................................................................3
— Lowering our Solar Key Global Indicator ..............................................................4
— Raising our Global Solar Module Demand Estimates given lower ASP trends......5
— Ratings and Estimate Changes ............................................................................5
Conversion Cost Analysis 6
— Key profit drivers in a world of balanced silicon supply: Conversion costs and
selling prices ........................................................................................................6
— How efficiency and selling prices correlate ...........................................................6
— Polysilicon – the ‘natural selection’ is an opportunity for the incumbents ..............8
— Ingots/Wafers – the largest players are the best, irrespective of their location......9
— Solar cells – Asian players beat the Europeans..................................................10
— Solar modules – Asian players appear better positioned ....................................11
— Comparing the vertically integrated players – First Solar remains the lowest cost
by far, but… .......................................................................................................12
— ...the picture looks different if we assume ‘normalized’ silicon sourcing costs .....13
— Thin-film vs crystalline: Where are we now?.......................................................14
— Tough times for low-efficiency thin-film module makers......................................15
— Conclusion: Merging conversion costs and price premiums/discounts................16
Brand Strength 18
Balance Sheet Strength 20
— Ranking systematics ..........................................................................................20
— Balance sheets to be stretched on higher inventories and higher receivables ....20
— We think Chinese solar companies have a certain funding edge ........................20
Lowering Our 2009 Global Solar Module ASP 23
2009 demand flat, but volume growth momentum in 2010 23
— Key Regions driving demand..............................................................................24
— Germany............................................................................................................25
— United States .....................................................................................................25
— Japan.................................................................................................................27
Appendix 28
SunPower Corp 32
Motech Industries 34
Evergreen Solar Inc. 36
OERLIKON 38
Sino American Silicon Products 40
Q-Cells 42
Solarworld 44
Renewable Energy Corporation 46
Conergy 48
Solon 50
Wacker Chemie 52

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