This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

First Solar, Evergreen Solar: What You Need to Know

First Solar, for example, is expected to double production of solar panels to the equivalent of more than one gigawatt of panels (the equivalent output of a nuclear power plant). Management concedes that demand may not keep up with supply: "We regard oversupply as a risk that we need to continue to monitor very closely," said CEO Michael Ahearn. It seems almost inevitable that FSLR and its peers will be posting fast-rising inventories over the next few quarters, and that is not likely to sit well with investors.

And oversupply means even tougher pricing. First Solar can handle that, even if 50%-plus gross margins and 15% operating margins need to take a hit in the near term. But what about the peers that are also flooding the market. Can they afford a price war?

Evergreen Solar (ESLR) just posted a $52 million quarterly loss on skimpy 4.6% gross margins. What do gross margins look like when end-user pricing will be falling at a fast clip?

Suntech Power (STP) just reported 0% gross margins and has tapped more than $1 billion in credit lines to meet funding needs. In short, this is not a business model that is prepared to handle a pricing shakeout.

In addition, even for those companies that have enough cash to weather the near-term downturn, profit forecasts still look far too high. For example, JA Solar (JASO) is expected to lose money in the December 2008 and March 2009 quarters, but it's hard to see how the company can post a sharp rebound in profits for the rest of 2009, as the consensus forecast seems to imply.

In fact, almost all industry forecasts seem to be counting on a significant boost from U.S. government policies in 2009. But even if the Obama administration doles out more goodies beyond the recently-announced investment tax credits, any major new projects are unlikely to hit P&Ls before 2010.

For the longer term, it does appear that the U.S. and other governments will be providing material economic incentives to solar, as they strive to meet renewable portfolio standards (RPS). But before that happens, the industry could look pretty bleak for the next few quarters -- at least.


Know What You Own: Other solar stocks include LDK Solar (LDK) and Solarfun Power Holdings (SOLF).

This was originally published on RealMoney on Feb. 25, 2009. For more information about subscribing to RealMoney, please click here.

David Sterman has been an equity analyst and financial journalist for 15 years, most recently serving as Director of Research at Jesup & Lamont Securities.
2 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,152.97 +21.00 0.12%
S&P 500 2,001.97 +2.99 0.15%
NASDAQ 4,559.4830 +6.7240 0.15%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs