Solar Devices
Long Wait for Profit
Dislocation = Losses: Pricing and competitive
dislocation in the industry are likely to be worse than our
earlier non-consensus view driven by sluggish demand,
large supply increases, and high excess inventory. For a
full discussion, please refer to our report titled
Dislocation: Industry Reset, dated 24 March 2009. While
stock prices have declined significantly over the past six
months, company and consensus expectations are still
very optimistic about shipments as well as ASPs. We
expect most of the solar companies to incur losses in
2009 and just about break-even in 2010. With two years
without profit, we do not expect stocks to perform until
expectations become realistic. Instead, we find JA Solar
2013 CB and Suntech 2012 CB interesting. We
recommend selling DC Chemical, Motech, and Yingli.
Cost = Price: With large oversupply, selling prices
should decline to the cash cost of median-cost
producers. However, due to existing contracts and
vertical integration, prices may remain above cash costs.
We expect polysilicon spot prices to decline by another
60% to US$50/Kg, driving wafer ASP down 35% to
US$0.85/Wp, and module ASP down by 30% to
US$1.85/Wp. Besides hurting margins, we believe that
such ASP declines will result in significant inventory
write-offs in 2009.
Unrealistic Expectations: Based on our expectation of
global installation of 5.5GW in FY09, we expect no
growth in global c-Si demand, because low-cost thin-film
modules will likely gain market share. Furthermore, due
to inventory digestion, wafer shipments may decline by
7% and polysilicon shipment may have to decline by
more than 20%. Most of the Asian companies are
currently guiding for 60-100% shipment growth in FY09,
which we believe is unlikely. We are forecasting 10-15%
shipment growth for share gainers.
Large Inventory Write-off: We expect each of the
companies to write-off 30-50% of the current inventory in
FY09. We see this as a major cause for significant
losses and balance sheet impairment.