As Germany’s Solarstravaganza kicks off in Munich on Wednesday, we’re reminded of the role the country’s government has played this decade in nurturing the solar industry this far. Few companies understand that role better than First Solar, which receives about 62 percent of its revenue from Germany. The Tempe, Ariz., company makes thin-film solar modules, which are less efficient than polysilicon modules but also — until now at least — significantly cheaper.
That “until now” part has been nagging at First Solar more and more. For years, a shortage of polysilicon drove up prices, making First Solar’s wares that much more appealing and turning its stock into a safe haven in the solar sector. In 2009, the shortage has become a glut. No longer is the commoditization of polysilicon just a vague threat lurking in First Solar’s distant future — it’s getting much closer to being real.
In late March, Barron’s laid out the bearish case for First Solar, and analysts soon echoed its concerns. Investors shrugged: First Solar’s shares have risen 44 percent since then. Tuesday, another analyst returned to that theme, only with some evidence that European customers are already shifting from First Solar to polysilicon solar companies.
Mehdi Hosseini of FBR Capital drove the point home recently by lowering his rating on FSLR from market perform to underperform — Wall Street speak for you’re-money’s-better-off-elsewhere. Silicon module prices are down 35 percent so far this year to $65 per kilogram, Hosseini said, enough to make them competitive with First Solar’s thin-film modules. So, customers figure, why not diversify a little?
As Hosseini noted:
We believe we have learned of one top customer of FSLR that has already switched to a si-based module vendor for one of its projects currently under construction.
The FBR report not only drove First Solar’s stock down 6 percent Tuesday, it lifted stocks like Suntech Power up 12 percent and Yingli Green Energy up 19 percent. Yingli was aided by a report by Lazard Capital, which noted Yingli’s margins could improve to 25 percent from 17 percent in its last (and somewhat dismal) quarter.
Some of this bearish analysis suggests First Solar’s fate is to vanish into an early footnote in solar history — a place to buy cheap solar until silicon-based solar became cheap. It’s too early for that verdict. First Solar’s management is smart, and its relationships with customers are strong. And bulls are happy to buy as FSLR’s stock falls.
Even so, solar is approaching a turning point where the polysilicon glut creates something close enough to pricing parity with thin-film that investors have to think seriously about the longer-term prospects of both.
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