Polysilicon-Based PV Manufacturers: Clarifying the Financial Issues
In this post, I will address the two most common criticisms of our article last month on several polysilicon-based PV manufacturers, such as Canadian solar (CSIQ) and Yingli Green Energy (YGE), and thereby hopefully clarify the financial issues that confront many of these polysilicon-based PV manufacturers.
Before getting to the criticisms, though, it is important to note that nearly all of the comments to the post fail to distinguish between cash outflows due to capital expenditure requirements and cash-outflows due to working capital management. However, these are two entirely different issues.
If the significant cash losses for some of the polysilicon-based PV manufacturers were just due to significant cap-ex needs, there would really be no major cause for concern as it would be a natural outcome of their growth and need to meet future capacity.
The issue, though, is that many polysilicon-based PV manufacturers have significant cash outflows even before cap-ex needs and it is this problem which needs to be addressed, especially considering the mismatch between positive accounting earnings reports and this negative cash-flow before cap-ex. Basically, the existence of significant cap-ex needs merely aggravates an already tenuous cash-flow situation, but it is not the major problem in itself.
As noted in the original post, when looking at several of these polysilicon-based PV manufacturers, it is clear that the main reason for these cash outflows before cap-ex, is due to the fact that these companies need to shell out huge amounts of money to suppliers of polysilicon, well in advance of receiving any actual cash revenue from customers. As these payables are dramatically increasing, the competitive dynamic of the industry is causing much greater use of longer-term credit-based sales resulting in very high accounts receivables growth. It is in fact questionable whether certain types of longer-term credit sales should even be recognized as revenue.
This is the crux of the working capital cash issues and given the competitive nature of the industry and still very tight supply of polysilicon, it is a situation that would seem to be getting worse, rather than better.
With that said, we can now move onto the two most common critiques:
Criticism I: Every Young Business That is Growing Rapidly Drains Cash
Answer: Obviously, young and fast-growing companies in any manufacturing-based industry will need to expend cash in building out infrastructure to support the production of products and future demand. However, as noted above, the issue here is not about cash drains due to cap-ex, but due to working capital cash outflows, i.e. cash negative outflows before cap-ex.
There is not one shred of evidence or any economic rationale to the assertion that fast-growing companies should lose cash before cap-ex after they reach a certain sales level. I’m not sure how anyone can assert that a company nearing a reported $1 billion in sales, needs to burn thru tons of cash before cap-ex needs and yet at the same time report extraordinary accounting earnings gains. In fact, just to put this criticism to rest, one counterexample, in the same exact industry, should suffice.
The most valuable company in the solar space now is the thin-film manufacturer, First Solar (FSLR). First Solar is growing as rapidly as any polysilicon-based manufacturer, and yet it’s operating cash-flow, before cap-ex, is solidly in the black and has been for quite some time. Interestingly, as opposed to many polysilicon-based manufacturers, First Solar makes it quite easy to track cash flows into the company, as it reports its cash flow quite simply as Cash Received from Customers and Cash Paid to Suppliers and Employees.
Criticism II: The Solar Industry Is Growing Rapidly and Therefore The Concerns Regarding polysilicon-based PV Manufacturers Is Misguided
Answer: Apparently, many readers took the concerns raised against polysilicon-based PV manufacturers as an attack on the entire solar industry. However, this was not the intent of the article.
Even if one believes strongly in the secular growth of the solar industry, as I personally do, it is obvious, based on past business history in every other major growth industry that ever existed, that many of the companies participating in the industry will simply go bankrupt or fail to provide any return to shareholders for various reasons. There are countless recent examples of this (i.e. fiber optic component suppliers) economic reality.
The fact is that a growth of an industry does not benefit all players in the industry’s ecosystem, as certain business models simply don’t have economic viability and many companies fail to receive adequate financing.
In regards to the solar industry, despite the secular growth, investing in many polysilicon-based manufacturers in the current environment may turn out to be a losing bet. The situation could, of course, change if a wave of merger activity goes thru sector, consolidating the power of the industry into a few large companies, and thereby the improving the negotiating strength over suppliers and customers and eliminating much of the working capital cash issues.
In conclusion, the solar industry presents some very attractive investment opportunities, but investors still need to focus on those companies that can at some point be self-funding on an operating basis, and have a unique technology that reduces competitive pressures.
In the case of many polysilicon-based PV manufacturers the cash outflows raise serious and real financing concerns and it is incorrect to value these companies off of accounting earnings and revenues. It will be paramount for investors to gain a clearer understanding of these companies polysilicon agreements and customer credit/sales terms, two facts that are not often disclosed in public filings, but should be addressed by management.
Disclosure: none
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This article has 67 comments:
This industry holds great promise, but danger as well.
where do the changes of the working capital come from?
was FSLR operating cash flow positive from day 1?
will thin film cost advantage persist if silicon prices plungs?
......
without digging deep to these questions and explain eaxh one there is no merit for this article and many others that are being written here.
we all know the risks and those that don't can go to any prospectus or F-20 report to read many pages that explain them. from credit risks to legislative risks to warranty risks and raw materials risks etc...
example - i am selling to 100 customers. i am new business in huge growth industry. this Q each customer buys 1000$ worth of products. last quarter they baught 500$ worth and next quarter they will buy 2000$. i hold 90 days of inventory. i give cutomers 90 days credit since there is lot of competition. i buy raw materials from 4 suppliers. i pay them in advance 90 days. raw materials are 50% of the revenue. my operating margin is 15%. i have endless cash in my accounts. there are no other expenses or income. all customers have AAA credit rating. i have 1000 competitors.
let's check how my books will look like.
Q0- i sold 50,000$ (100 customers * 500$ each). cost of raw materials was 25,000$. i paid to the suppliers advances of 50,000$. i had inventory of ~25000$ at the begining, and ~50000 at the end of the Q0. i had operating profit of 7,500$. customers paid 25,000$ for last Q0 and i gave them new credit of 50,000$.
in my books - profit of 7500$ (50000*15%)
working capital changes -
inventories - ~25000 (50000-25000),
accounts recievables - 25,000 (50000-25000),
advances to suppliers - 25,000 (50000-25000)
overall i had a profit of 7500$.
my operating cash flow was - 75,000$+7500$=67500$.
in Q1 - my profit will be 15000$.
my operating cash flow will be (assumung growth rates are the same and all other things also the same) -
changes of working capital - 150000
operating cash flow - -135000
if all stays the same we will keep doubling every Q.
if growth stops, after 2 quarters we are turning and becoming operating cash flow positive.
so in the bottom line (and for everyone that is reading the motley fool articles please be advised to be careful as they don't pay attention to these issues and just work through the bottom line of the cash flow parts while they make fun of people that just read the bottom line of the P&L) when growth rates will start to decline the cash flow trend will turn (operating) and if it won't we will mark it as a big negative and will have to understand why or to stay out of the company. for this industry with it's charectaristics it is no surprise that all the companies have the same issue. this is the game in yhis part of the industry (PV) and if you don't like it stay out. don't tell me that the fact that i have to pay in advance for goods that are in high demand is ony a negative. if it wasn't in high demand there was no growth and it was just a stagnant industry.
and regarding FSLR - it uses tellurium. this is one rare ingridient. can the company secure all it needs in this front to keep the pace of growth? when the heads of the company are being asked to answer that they always skip this issue. i was investing in FSLR but i'm staying away because of this behavior. if they feel they need to hide it i feel uneasy. they might be the big winner in the sector, but i like transperancy and avoiding answering this issue of this magnitude is red sign for me. right or wrong doesn't matter. i don't like thier game so i stay out now. the fact they were operating cash flow negative in the early years wasn't a negative. although i invested after they were already positive.
if my example is too simplistic i apologize. it is like that in the hope everyone can understand.
i didn't answer all the above questions as this will be a very long post and i am already tired. everyone needs to do thier own research and make an educated decision.
good luck too all
SOL, LDK, CSIQ,SPWR, .....YGE, ESLR ...are good compnies .There are more POSsibility of merger. Take out candidate SOL. SOLF.
WE have more corruption then CHINA. People have made moe money in chinese stock then american stock. Check it out your 401 k?????
JIM cramer bassing chinese compnies , why ?????Nobody knows.
You are correct. There WILL be major carnage in this space with several high flying companies imploding. Everybody knows this industry will really take off in five years as the technology matures and the subsidies completely disappear. We will have product priced per watt under coal/nuclear (with decom costs) and this baby will fly. The companies built upon rigid financial models that require subsidy to be profitable will end hastily. Fact.
Institute
for
Sustainabili
ty
1) "Huge" amounts of money on prepayments.
ANSWER: I will use Trina Solar since I know its numbers pretty much off the top of my head. Silicon purchases expected in 2008--200 to 210 MW. Silicon cost per watt expected this year: Around $1.50 to 1.60 ($1.76 reported in Q1). Total poly cost in 2008: $320 million.
According to last TSL conference call, prepayments are now running in the low single digits. Let's pick 5% to be conservative--and assume prepayments are made on ALL silicon purchases (which is not actually correct).
5% times $320 million--$16 million in prepayments, representing about 2% of 2008's expected sales of around $800 million.
2) Silicon costs are going up.
ANSWER: According to several conference calls, everyone is talking about 12-20% decreases in silicon costs in 2009.
Also, no consideration is given to the fact that prepayments are sometimes made to the panel manufacturers for their production as well.
Undocumented assertions:
1) "Sales" aren't really sales because they haven't been paid for--evidence? which company? How much?
Truths that are useless:
1) Some of these companies may go bankrupt and fail to reward their shareholders.
ANSWER: true but useless assertion. Tell me which one, and why.
2) Receivables may be too high.
ANSWER: Sure. At what percent of sales should receivables be in a company that is doubling sales per year? Which solar fails to meet this test? Since a large percentage of the sales are being paid for via subsidies which may take 60-90 days to process, what is your basis to believe that 90-day credit terms indicate danger?
How many defaults in payment for product have there been in the solar business? Wouldn't knowing this fact be useful to supporting or refuting your thesis?
Jack
Rec, as a few other solar company's, is a fully verticly intigrated solar company, meaning they do everything from producing polysilicon to fabricating wafers and cells and eventually also selling and installing the panels itselfs. Rec is one of the leading solar company's and it is the most profitable in the whole solar space, quite probably due to this vertical intigration.
Isn't it so that verticly intigrated company's are insulated from the problems you adress? I can mention a few more verticly integrated solar company's. As to the future of this company, i'm pretty sure it will susrvive, it did survive the collapse of the first solar hausse, it was around already by that time to. i think it's easily the oldest pure play solar company so far right now.
Being verticly integrated and having a large profit margin should be an indicator that the company has a better chance to survive?
You stated "fail to distinguish between cash outflows due to capital expenditure requirements and cash-outflows due to working capital management. However, these are two entirely different issues."
From an investment point of view, both are the same issue. Cash on CAP-EX is to spend cash on something that will generate revenue later, such as purchase of equipment; cash spent on advance payment to secure longterm cheaper supply is to lower cost for future higher revenue. Therefore both are investment decisions. The question really is whether the supplier you pay advance payment to and the customers you receive revenue from have good standing financially. Plus whether the future market demand warrents the investment. It has some risk in this decision making for sure, but it is not unique to solar industry. You mentioned merger and consolidation will improve this risk, that is true, but that is an entirely different subject, don't confuse readers.
very good comments jack.
one thing that isn't correct is the assumption of the declining silicon costs. it's like 2007 all over again.
if you'll read SOLF F-20 they already say that the silicon situation will probably stay the same at least into 2009. another company also stated it but i don't remember which.
also pricing of wafers according to official sources in taiwan went up during june. silicon went down and reclaimables wnet up with a differential of around 60-70$ between silicon and reclaimables. SOL mentioned that reclaimables are problematic now which will send it and some others to the silicon market.
i also assumed deep declines in 2009 till 2 months ago. but all this june dats and a little of may data is making me rethink my assumption of declining prices in the near future. also if some companies will only get partial funding some will have to decrease the production expansion.
another issue that is problematic is gasses. in order to produce silicon the companies need special kind of gas. WFR stated some chineses companies are trying to buy it from her. if they can't put thier hands on the gas they will be unable to achieve the expansion goals.
all that said i like this sector a lot. like jack said i have no clue which company will be the winner and which will be the loser.
i added to my positions on SOL SPIR TSL LDK CSIQ
If you believe long-term, diversified silicon sourcing (they call it "virtual integration" compared to vertical integration) is the way to go, I would think Suntech would be your silicon PV company of choice. They were cash-flow positive before they did their convertible offering in March - a move that solars like Trina and CSIQ are just now making - and have locked up plenty of supply since then. This would give them a major advantage over those players that still need to sign deals to secure a part of their '09 product. Suntech has done this and they still have plenty of money in the bank.
Possible downsides include the fact that refining silicon is very complicated. If MEMC can have a plant shutdown, then any of the newer startups are almost bound to have this occur. Also, I could envision a scenario - though it seems unlikely - where silicon prices decline so much that Suntech finds itself locked into higher rates than it could find on the spot market. Again, such a scenario seems remote.
@Jack -- broaden your base of prepayment and what these contracts actually look like (Take or pay at what %, narrow delivery, forward sales base etc) and you will have a much more clear picture. And by the way -- not so good...
Another thing. All you people thinking in singular dimension, look at total authorized subsidy against MW production and the brutally honest fact is this industry is over produced. This will cause price collapse in panels through the chain, margin compression will hurt PPS and YES some of these companies are headed straight for the scrap heap. I've done research on the numbers. Don't get smarmy and ask for numbers. Get your own.
Solar power now generates something like 0.2% of total energy need. It's not the market is saturated, not by far. In fact if Solar holds the potential that people perceive it to have, that is the potential to provide something like 30% or more of our energy need within a few decade's , an energy need to probably will have substantially increased too, then from that presumption we can only conclude that the industry is still in it's baby shoes production wise.
Maybe what you wanna point out is that we have to much capacity to soon, that demand won't be high enough at the current cost effeciancy of solar. I think that would be a very speculative presumption, if the energy market would shift only a tiny bit more towards solar then it could already have profound effects since solar is so small. It's very difficult at this moment to speculate on this, the energy market is changing very rapidly at this moment due to price changes in energy commodity's. There are lots of factors that can affect demand of solar energy in a relative short time span. There is this ellection comming up in the USA for one and it could have quite a profound effect depending of who wins.Thats just an example. there is just so much that can happen that might render youre numbers useless.
I am hardly smarmy. I had to look the word up. It is not very flattering.
When I politely asked the author to supply numbers to back up his assertions it was because he must already have them if he made the assertions in good faith. I am beginning to doubt that now especially in light of your 'smary' comment.
My doubt about the authors assertion is based upon his expectation that demand will not keep up with supply near term. Everything I have read shows continued strong demand into 2010 and, with oil at $145 and coal at records I don't see solar hitting a big slump soon. I listened to an interview with the CEO of Q-Cells this week where he said he expected continued industry wide growth of 50% into 2010. His company is building capacity very rapidly right now. Also, France and Japan are both now indicating the likelihood of subsidies soon. It is my opinion that U.S. demand will continue to grow and perhaps dramatically under the next administration. All of this adds up to demand capable of sustaining growth for years to come.
Finally, it is the Chinese that are the low cost producers and should demand slow I suspect they will be better able to compete than some. Also, I don't think the Chinese government will allow wholesale destruction of their solar industry. They will find short term funding if they need it, which I doubt.
Perhaps you might also elaborate on which companies you think will win, if in fact some are destined for the scrap heap via a panel price war, and why. Finally, if your top secret numbers are so great, make a few million and live in style off them, but don't blog the sky is falling and then not back it up with any meat.
here is a link to an interview with WFR ceo. it explains another restraint to the silicon production problem.
even if there are 1000 faclilities beingbuilt to produce 10 times the market demand they will need silane gas in order to produce the silicon.
silane gas producers are few and they are not keeping up with demand. they keep expending but the question is will they be able to do it in time with all new apacity coming in the next 3-4 years. for now the answer seems to be NO.
some chinese producers are bidding for silane gas anywhere they can. if theycan't get what they need we will have lot of potential silicon capacity but we will be unable to reach this capacity as the silane raw material is becoming a real bottleneck.
solarenergyblog.blogsp...
good luck
www.pv-tech.org/materi...
tor
Rec is also a very good source for insights into the industry, always liked their presentation material, and i give it more credit than youre average analyst to.
Mystifying the Financial Issues
about stock: ???
>> one counterexample, in the same exact industry, should suffice..
Since when is a semiconductor monopole, with a monopolistic supply chain using CVD processes, combining the world's most extremely toxic metal with the world's most extremely rare metal in a product which can not even be sold under standard legal business practices in the EU, "the same exact industry" as the solar silicon pv sector?
The agricultural, aquacultural sectors can produce motor-fuels, so can Big Oil, are they all the same industries?
Silane is a rate-limiting feedstock for polysilicon production, and insufficient production should limit poly production and should therefore be inconsistent with decreasing poly prices.
Can someone reconcile these seemingly well-documented facts?
Jack
ator
ator
Zacks Rank in Industry 1 of 44... the best of all solars.
See Zacks' site. This in addition to Investors Business daily June ranking of SOL as the 4th best company (not just solars but the whole world, every company) to invest in... and in addition to Piper Jaffray's amazing careful on site research on SOL.
I'm sorry, but I trust all three combined, Zacks, IBD, and Piper Jaffray more than some little unclear internet article written by someone with possibly a (short) vested interest, who is an unknown unproven writer (even though I like Seeking Alpha).
Read this quote from Zacks 7 trade days ago:
"Through its history, ReneSola regularly adapted to changing market dynamics. The company is aggressively ramping up its polysilicon and solar wafer production capacities. Going forward, increased captive generation of polysilicon will improve its cost structure and enable wafer capacity expansions. Globally, rising solar wafer sales, along with escalating crude and long-term supply agreements, should collectively generate significant earnings growth. Buoyed by these positive factors and
impressive results, SOL increased its 2008 production
output and sales guidance. Accordingly, with a
bullish outlook and an attractive relative valuation, we initiate coverage of SOL with a BUY recommendation and a six-month target price of $24.25, representing 27.2% upside potential."
Note: today, at $13 SOL upside would be perhaps 40% ... Zacks published this above article 7 trading days ago when SOL price was much higher... other analysts still have targets of $40, some at $55 on SOL...
Time to run to your laptop place a big buy order on SOL ...
it will be nice if you'll just post the links to the recommandations and a short post than to post an endless post with no real good data.
i for myself love SOL and it's my no. 2 after SPIR, but reading your post didn't help me one bit. i read the zacks rec on some stocks and it's usually quiet worthless.
if you reallt know SOL than you would know that they have been struggling lately getting thier hands on reclaimables (and reclaimables prices went up around 20% last quarter). they said in thier report that they may need to go and buy silicon on the spot market which might not be good for forward margins (at least in the short term), the reclaimables issue will put more pressure on the spot price.
Jack - first we need to remember that the 500$ price tag was a one time issue (when WFR said that they have problems the market went balistic) and the price we look at as a problem is the 400$ mark. in my opinion it's unlikely we will see a drop to the 200-300 area that people are talking about in the near future.
i already stated that 2 companies wrote it in thier F-20 reports and for now here is a link of SOLF F-20, at page 38 "We expect the current silicon shortage will continue into 2008 and 2009."
files.shareholder.com/...
i have yet to read few more F-20's and i'll post other remarks if i'll find them.
TSL - i love this stock, but i have one problem and it's the fact they aren't raising nore funds. still, it's ranked as no. 3 after SPIR SOL in my portfolio.
why do they see lower cost for the second quarter? i have no exact answer, but i can give some ideas.
first let's remember we have spot prices and long term contracts which are priced well under the spot market.
we also need to rmember that many of the contracts to buy silicon in the future are contingent. the buyers can negotiate the price and some are take or pay contracts.
the same goes with the cell and modules contracts. buyers can cancel orders and like in real estate and like what we saw with AKNS that got many canceled orders for installing and it halted some of the buying from distributors, they will do that if things turn south.
since TSL has many long term contracts it can get much better prices than spot.
maybe in other quarters they had to buy lot of supply in the spot market.
maybe they are going to produce more in house and they think it will the margins better.
maybe and maybe and maybe
it's possible that maybe they are just wrong.
i don't have a crystal ball and i just use logic to analyse the given data. if some companies are scaling back on the plans to build silicon plants it might be that they think prices will plunge or that they have problems raising the money for it.
when i see these companies scale back and i hear that growth is above projections and i see raw material to produce silicon is a problem and that the market in june for spot prices was strong and the prices didn't retreat to the level before WFR glitch i must be skeptic about the near future (2008 and maybe longer).
i'll be a happy camper if prices will decline' although i would always prefer an orderly manner, since wild decline can bring a halt to many planned projects.
overall TSL will be a great buy if it will complete some kind of funding as it will need cash to keep expanding as they plan. for now it's a good buy. SOL turned from good to great as they finished the secondary in June. the problem of funding is reported in each F-20 of a solar company (most of them) at the risk factors. TSL says it also, so we must take what they say into account. they night be writing this to cover thier hinies or they might be thinking this for real, we need to take it seriously.
i'm sorry i can't answer the question with good sound data that is complete clear and undisputed (it would have been great for me 2 :))
Things are happening in all directions and in all dimensions. Please see the link below, to show how Germany and other EU countires stepping up to the plate to promote renewable energy.
www.iht.com/articles/2...
CSIQ - at the F-20 page 7 on the PDF version "we do not believe that the supply shortage will be alleviated in the very near term"
TSL - F-20 PDF page 5 "we do not generally purchase polysilicon from the spot market.." "based on our experience, we believe that the average price of polysilicon will continue to remain high in the FORSEEABLE future..."
JASO - short explanation of the nature of the contracts with silicon suppliers F-20 page 6. page 39 "we believe the average price of polysilicon and thus silicon wafers will remain high in the near term......"
Silane gas (Si4) is not a feedstock for polysilicon production which uses trichlorosilane. Trichlorosilane is very easy to make:
Si (metallurgical grade) + 3Hcl (chloric acid) -> HSiCl3 + H2
This process is then reversed at very high temperature (1400 C) to purify the silicon.
There is certainly NO SHORTAGE of HYDROGEN GAS nor of CHLORIC ACID or METALLURGICAL GRADE SILICON.
3 x cheap = cheap
Silane gas (less easy to make) is a feedstock for the amorphous silicon deposition on glass substrates technologies (thin film, low efficiency, AMAT, ENER types)
If a Si4 shortage will devellop (probable) it will effect them and not Trina, nor the price of average contracted Polysilicon, at least not the 12-20 % reduction expected by nearly all supply analysts.
WFR uses a metallurgical grade silicon purification process called Fluidized Bed Reactor (FBR)-technology which does use silane gas (Si4) but for the semiconductor industry which uses little of it, so it won't inflate the price of our computers.
That said, there is one company, REC of Norway, which has attempted a pilot PBR project in Moses lake, together with the Siemens (traditional, reliable) process under one roof. Well, what happened is the pilot failed, more or less, and the problem was that it delayed the entire (traditional Siemens process) polyplant.
Problem for REC: poly needed for solar cells in 2008, but could not be produced at Moses lake, had to buy on spot market: stock tanked and the poly spot price upped to $500/kg (scary!), much earlier then predicted by Photon consulting.
FBR has a power advantage over the Siemens process but is more unstable and uses expensive catalysts.
The Chinese poly-producers have indicated no interest in the technology.
Should you have any questions of a solar technical nature, i can highly recommend Edgar A. Gunther
You can email him at: ed.gunther@gmail.com
Also has a very informative news-blog, should you have some spare time cq. be interested:
guntherportfolio.blogs...
aqua
2 messages from this article are relavent to note here:
1. Q-Cells is bullish on future solar power demand, otherewise it would not have planned EverQ IPO.
2. REC will supply poly to EverQ, that means the production problem it had in 2008 has been mitigated and back on track to produce poly, thereby supply crunch will be eased.
They used 7.5 grams of poly per watt in Q1, at a poly cost of $1.76/watt. Working backwards yields a poly price paid in Q1 of $234/kilo.
TSL did advise they expect poly prices in 2009 to be 12-15% lower than 2008. They should know because they have already presold 60% of their panel production for 2009--it is extremely unlikely they would sell panel production without having bought the poly needed for those panels. That drop could certainly be due to dropping price levels in pre-arranged poly contracts--ie, spot poly won't drop but the provisions in the longterm contracts DO provide for a drop.
I just don't know.
We are, however, only a week or two away from the beginning of solar earnings season (does anyone know exact earnings announcement dates for the various solars?), and over the next few weeks, we should be able to get much more info on what poly prices are doing now and what they are likely to do next year.
Finally, as to SOL: I believe its PE is far higher than 4--I believe the poster is using renminbi (RMB) earnings to calculate that PE.
Jack
"If a Si4 shortage will devellop (probable) it will effect them and not Trina, nor the price of average contracted Polysilicon, at least not the 12-20 % reduction expected by nearly all supply analysts."
"That said, there is one company, REC of Norway, which has attempted a pilot PBR project in Moses lake, together with the Siemens (traditional, reliable) process under one roof. Well, what happened is the pilot failed, more or less, and the problem was that it delayed the entire (traditional Siemens process) polyplant.
Problem for REC: poly needed for solar cells in 2008, but could not be produced at Moses lake, had to buy on spot market: stock tanked and the poly spot price upped to $500/kg (scary!), much earlier then predicted by Photon consulting."
link to what happened at moses lake project:
www.solarbuzz.com/news...
there is something illogical in what is written. if there was a problem on the feedstock for FBR technology and it i said that it would have no influence on the price of polysilicon how come in another paragraph it is said that these problems in the moses lake project made the price of polysilicon go to 500$ and if so is ther no effect on all buyers of polySi?
to the point - siemens (with it's varations), FBR, MG- SoG and others make polysilicon. there may be differences in purity, but cell and module manufacturers will buy this polysilicon. this is the SUPPLY SIDE that companies that use this silicon see (including IC companies).
suppose a company that uses the FBR technology is being effected by shortage of Silane gas. the end result is less polysilicon in the market.
company like WFR is a big supplier for Chinese companies with STP in the front. if there will be no Silane gas cab someone really believe that the price of polysilicon will not be effected?
if someone thinks so - better stop investing and go fishing. you'll save money.
the post that aqua wrote starts very well as he's going into the production proccess with some more depth.
the conclusion and the deductions are horrible and the funny part is that it contridicts itself within the same post.
that being said i might be too hard on aqua and this gunther guy of his, as they do try to help all of us, but please try and give facts and not write a wish list. most people will make the mistake of believing what is written and fall deep, not taking into account that a mistake can be made (especially if they are in the right side of the post with thier portfolio).
good luck to all
07/17/2008 2100 ET SPWR eps est: 0.503
07/17/2008 2200 ET ESLR eps est: -0.102
07/28/2008 1800 ET LDK eps est: 0.42
07/28/2008 1800 ET FSLR eps est: 0.582
08/04/2008 0600 ET JASO eps est: 0.152
08/04/2008 0600 ET STP eps est: 0.32
08/08/2008 ???? ET YGE eps est: 0.21
08/11/2008 1800 ET CSIQ eps est: 0.50
08/15/2008 0600 ET SOLF eps est: 0.23
08/18/2008 1800 ET SOL eps est: 0.305
08/18/2008 1800 ET CSUN eps est: 0.03
08/18/2008 1800 ET TSL eps est: 0.71
I suppose you have a point there regarding the poly supply. However, I think what aqua said was silane is the feedstock for amorphous silicon thin film application, and for use of FBR technology. It is not used for Siemens traditional process which is the technology used by Chinese poly producers. REC's Moses lake plant will produce 9,000 MT of silane gas in q2 of 2009 according to the article, so the shortage may just go away by then. You are right about silane gas being short supply is affecting the poly output from a global poly supply perspective.
Where did you find the TSL report date of 8-18? I looked on the website yesterday and it was not there.
SPWR and ESLR both use poly, so hopefully we will learn more about poly availability and prices in 11 days, on 7-17 when these companies announce.
Rana, someone here had argued that SOL's 2008 FPE was 4, and I knew that was not right. Your post indicates an FPE at 10, which makes sense because when I wrote my most recent review article, SOL's 2008 FPE was a bit under 20 when SOL was almost double its current price.
After earnings season, I will do another summary article that will use 2009 FPE for the first time because I think we'll have much better visibility into 2009.
Jack
Scott
solarfeeds
in my book this will cause a race after the polysilicon that will cause prices to rise
if this is not clear and easy to understand i give up
wait, i'll give an example. let's take lumber for example.
there are two companies. one is taking the lumber and cutting it with machines and the other in cjina uses people with tools to cut the logs into pieces of wood. both havethe same end produce and they supply exactly the needs of the market.
suddenly someone stole all the macjines of company 1 and there are no macjines to buy.
the market now had only the supple from the human labor and it's just 50% from the market needs.
prices will now rise and the companies with the best margins will probably be able to buy this supply while others will get into troubles.
this is an example that i made up and has nothing to do with reality so don't start posting that it's wrong. take it and change it to an industry you know if you don't like tyhis example.
i hope this helps even more.
Polysilicon
Supply, Demand, & Implications
for the PV Industry
starting at page 5 there is an explanation of the methods used for polysilicon processing.
there is a lot of other data in this paper that is worth noticing
hope this is also helpful
hope this will also be helpful
moneycentral.msn.com/i...
at the same time fslr gets hyped and promoted by the author based on their 'superb' cash flow, but never mind that they only earn fractions of the money these chinese companies do and sport trailing and forward P/e ratios that are in the stratosphere.
in short, between all the number crunching there are many rather baseless assumptions made (or different assumptions implying a much more positive outcome could be made with equal justification) and quite an amount of bias against chinese companies in general becomes visible.
1) It isn't about opportunity.
2) It isn't about the "promise" of solar.
3) It isn't about interest.
What it -is- about is the total global production in MW against the total global subsidy money. The industry will produce approx 40% more product for the entire global market than there are subsidies to pay for it. This has been known for months. Solar does NOT sell anywhere without a subsidy. The fact that we will have MWs of production with no buyers will prick the solar bubble.
For example.
www.bloomberg.com/apps...
i also didn't see the data about what is the total production expected to be in the years ahead.
i can understand that you may FEEL this is the case, but if you want estimates yo can go to WFR annual report and see some data about supply and demand based on reaserch firm and WFR estimates and there are more reaserchs that are showing the opposite of what you're FEELING.
you can also go back in time 2-3 years and see supply and demand estimates and how reality today is much higher than any old estimate.
untill you'll give us the data in an orderly manner, or at least links to the data you're talking about (let alone that in some places in Japan USA and few other places we are already under grid levels) your post is irrelevant and immaterial.
i am sure we will all be thankfull if you'll show us some hard evidence as it can save us a lot of money if this is the case, but as long as you're posting things that are coming to you while you're walking in your sleep, please save us the time and post it elsewhere.
here we want facts. we have no problem taking a loss and moving to the next investment if it's based on sound reasoning.
you're GLOBAL PRODUCTION IN MW AGAINST THE TOTAL SUBSIDY MONEY is nonsense, unless you wan to show us that oil will go down massive in the next few years and why and show us how other positives for this industry are going to turn around.
and off course we prefer to take side with all the companies in this industry that are on a wild race (which will end sometime in the future and consolidation will take it's place according to Darwin rules) than to see few lines that you post here with no real data to support it.
if you want to tell us about the risks it's not needed as we all read them in the companies prospectuses and F-20's.
thank you but no thanks.
Also bought more PWE at ridiculous prices in the $30-range. They will blow out Q2 earnings and yet PWE is trading at the same price it was 3 months ago when oil and gas were about $110 and $10. What has happened to the oil and gas stocks is incredible (they have gotten shot in the past few weeks) given increasing oil and gas prices and expectations that they will remain high.
Jack
Can you comment on today's article from Envoy Global:
seekingalpha.com/artic...
You said to me "GLOBAL PRODUCTION IN MW AGAINST THE TOTAL SUBSIDY MONEY" Then you went on to say that I should read the WFR 10k to get the numbers. And a whole bunch of ranty nonsensical sleepwalking stuff...
1) If your rely on the companies own 10k/q for the larger market picture you will go broke.
2) There are plenty of credible research reports stating that the global production in MW of solar will far outstrip the available monetary subsidy. Use Google.
3) The price of oil re solar is no more than psychological. As a vehicle to correlate to solar having extreme marketplace value is a canard. Oil doesn't produce electricity, yet the cost to produce, distribute and install solar assets is greatly influenced (negatively) by the high price of oil. In fact, the high price of oil has a real world tangible damaging effect on the solar industry. Do you think solar is more cost effective to produce and ship around the world for installation at $50 ppbl or at $150 ppbl? I think you know the answer to that.
I don't understand why people need to get so mouthy when the incredible gift of Google is available. The fact that people represent themselves as solar investors without even understanding the industry at the highest levels is beyond me. If you try and make investments thinking your particular company is the dog and not the tail then you are doomed.
And lets not forget to mention the direct oversupply...
www.greentechmedia.com...
the article you cited was dated 2/19/08. With the dynamics of the market it might not be relevant anymore. Furhter, Jesse Prichel was siiting in the panel, and I suppose he was negative about the solar market as well. However, after the German subsides policy was finalized a few weeks ago, he encouraged his clients to buy solar stocks. Isn't that ironic?
The link I provide here, shows Q-Cells is bullish on the market demand. Are they wrong? or the so called " analysts and investment bankers" are wrong?
www.sustainablebusines...
again you say things but do not give any data.
i don't use google for research but i do use reliable reaserch firms. if you were to check what i said about WFR you would have seen that there are WFR estimates and reaserch firm estimates. but in any case, at least i give references, you just say things and give no data from any credible source (search google isn't a source, and if that's the case i'll tell you the same, check google and you'll find many sources that say that we will still have supply and demand problem.)
regarding utilities you are correct, petrolium was just 2% at 2006. natural gas was 20% and coal was 49%. all 3 tend to move together in the bigger trend. that's 71% of US electricity production. as usual here is a link for this data www.eia.doe.gov/kids/i...
but i guess you think that shipping costs for polysilicon and wafers (in cases it's needed) is more important than price of key raw material in the utilities costs.
as i said, we will all be thankful for references for your data so we will all get the correct picture and bail if needed. but for some reason you insist on saying stuff and not backing it up with real research. i have no clue why you do that and frankly i don't care. i do care about how it can influence some people and for this reason i will keep criticizing posts that are not backed up with real data, which can be checked by everyone.
and if there are so many researches out there in google from reliable resources it will be really easy for you to post a link and will also be very nice as we will all better educated and will have more data with which we will base our decisions.
good luck.
first i want to apologize since i didn't see the link at the bottom.
if i agree or disagree is irrelevant since now i know who said what and i have the tools to evaluate the data by myself (regarding pichel we all know his views and his track record, but still we need to check what he says and make a decision)
please accept the apology and thanks for the data
:)
PWE looking good
just wanted to ask why do you think they blow out estimates?
thanks
he has price target on LDK at $28/share after LDK's first Q CC. LDK went up to $47/share 2 weeks ago before the market sell off. He has $60/share on YGE, now YGE is trading at $14 plus a change. It show the vote of no confidence in him by the investors.
Rana, as to PWE--last quarter, PWE projected record earnings this year based on an assumption that oil would be at $107 and nat gas (AECO) would be $8.50 this year. Well, oil averaged over $120 in Q2 and AECO gas was about $10.
Since almost all the excess goes to the bottom line, these higher commodity prices will really goose cash flow.
Jack
Global
Research
If you are inclined to believe that accounting earnings are a true measure of a company’s profitability and that soaring debt levels are a sign of financial health and investment quality, please stop reading this comment now, and safely ignore all our posts.
If, however, your investment experience has shown you that a large, negative, mismatch between accounting earnings and operating cash flow (before cap-ex), combined with soaring debt levels is a sign of financial trouble, and in some rare instances financial fraud, I think you’ll at least pay some attention to the concerns we raised, though perhaps you will disagree, and rightfully so, on the eventual outcome.
At the risk of repeating myself, the point of these articles on some polysilicon-based PV Solar Manufacturers, whether Chinese or not, is merely to point out the following:
1. Despite positive accounting earnings reports, not one of the solar companies mentioned in these reports, and a few others not mentioned, actually makes any money. As such many valuations, such as P/E valuations, are not useful and are misleading. Once again, Accounting Earnings believers, please read paragraph 2 of this comment. Others, the proof of this is in the financial statements in every single 20-F.
2. The reason these companies don’t make any money has nothing to do with their growth profile or cap-ex needs. They can’t make money simply because the competitive nature of the polysilicon-based PV industry (every Joe Schmo can manufacture the same type of panels and cells) and tight supply of polysilicon, has created a unique working capital situation where companies are forced to offer ever longer credit sales, while at the same time are forced to pay huge amounts of money upfront for raw materials. This lower level of actual cash receipts from customers, combined with an ever increasing amount of cash payable to suppliers (known as purchase obligations and also available in every 20-F) makes the business unprofitable. I see no reason why this working capital situation will change any time soon. Nor do any of the companies, as they all openly warn in their 20-F's.
3. Since these companies don’t make any money, they are forced to borrow money at ever increasing rates to stay in business. Companies, like individuals, that are built on debt and do not really have the necessary self-funding cash flow to meet future obligations are destined to collapse when funding dries up, which it always does.
Best of luck to everyone here.
When you say "not one of the solar companies mentioned in these reports, and a few others not mentioned, actually makes any money.", do you mean that somehow their earnings reports is false, or do you mean that their earnings are accurate, but are not sufficient to cover their ALL their outflows--ie, they have negative "cash flow" rather than negative "earnings"?
If you believe their earnings reports are somehow miscalculated, can you give specifics of how you have arrived at this conclusion?
Thanks in advance,
Jack Yetiv
Global
Research
I've never said that accounting earnings are false. They adhere to generally accepted accounting principles. However, this not the place to go into US accounting principles, accrual accounting, cash-flow, revenue recognition, working capital etc. All topics which I'm sure you and others are quite familiar with.
There are plenty of books and websites available that explain these principles and why accounting earnings as reported by most companies, are very often, while not false, not a true representation of profits (in both positive and negative ways). Often you'll even find companies with major accounting losses, that are in fact quite profitable. Sometimes, like in this case, it's the opposite. It's not all that complicated an issue. A simple perusal of the cash-flow statements and balance sheets vs. reported accounting earnings usually tells the tale.
In the case of many solars, a simple reading of the risk factors in each 20-F clearly spells out the issues.
Best of luck.
Regarding risk factors listed in their 20-F form, these companies are obligated by law to list anything that potentially is a risk, even with 1% of probability it would occur. It is the investors job to assess what is the probable possibility it will occur. It appears that you take it as a risk that likely will occur. You need to back up your speculation with numbers and analysis, not just because it is in 20-F form.
Do you as an analyst detect problems in the cash-flow statements of these four companies that would not be evident from the other financial statements alone?
Such would have to be e.g. treating ongoing expenses as capital investments, thereby fraudulently boosting net income?
TSL earnings report date still tentative. Thats why its not on the website yet.
If Obama wins (which seems likely as of now) I think the whole group of solar stocks will move significantly higher. You can see details of Obama's energy policy here.
www.barackobama.com/is.../
I think some of his proposals such as
Invest $150 Billion over 10 Years in Clean Energy, Require 25 Percent of Renewable Electricity by 2025, could be huge for the american solar companies.
My current holdings consist of SOL and TSL (got in at about 36 for TSL and 17 for SOL), have some more money to invest...which of the following would be the best buy at current price:
1. ESLR - 8.91
2. ASTI - 8.80
3. SPIR - 11.26
Of course I expect the rate of return to be quite low on FSLR, ENER or SPWR. Would you reccomend any of these three over the ones mentioned above.
Amongst the chinese ADRs which are the ones which seem most attractive at current prices for future gain (maybe year end). I am listing it in the order I like.
1. SOL - 13.29
2. YGE - 14.47
3. TSL - 30.13
4. SOLF - 14.49
5. LDK - 32.4
6. CSIQ - 33.5
7. JASO - 15.49
8. STP - 33
Not sure if we have hit the bottom yet, but any of these companies at current price will give you chance to come out with sizeable profit within the next 6months - year.
Thanks,
-Andy
1) CSIQ
2) ASTI (has 10 fold protential)
3) ESLR
4) SOLF
I believe CSIQ will have a P/E of 8 or less this year, I raised the guildens to 230mw to 260mw, and plus the 14.8mw just anounced yesterday. I am not sure they have taken their E-Module into account, if not, this is an amazing buy.
Also they expect to have 550mw in 2009, the CEO saying they have
strong demand from the customers into 2009, have presold significant amount.