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LDK Solar: Too Big, Too Fast?

NEW YORK ( TheStreet) -- LDK Solar (LDK) is planning to build a solar manufacturing facility with 1 gigawatt of solar cell and 500 megawatts of solar module capacity. The manufacturing facility is expected to begin production in the second quarter of 2011, backed by $368 million in financing for up to three years from a Chinese lender.

Many of LDK Solar's Chinese peers are ramping up capacity and moving to a more vertically integrated model. Therefore, it's not a surprise that solar wafer maker LDK would be looking to branch out on the solar supply chain. However, LDK's plans are complicated by three factors: 1) its ongoing polysilicon plant ramp, 2) its balance sheet issues, and 3) potential oversupply in solar.

LDK just came off a solid second quarter, during which the Chinese solar wafer maker improved its balance sheet to an extent that LDK hadn't been able to achieve in the past two years.

With $433 million in cash balance at the end of the second quarter, LDK seemed to buy itself some breathing room versus critics who worry that the company remains overstretched as it ramps up its polysilicon plant. One major negative in the recent earnings was that the polysilicon plant ramp schedule, already delayed many times, seemed still behind schedule, even as it showed signs of progress.

"Certainly, in a traditional Wall Street sense, you would like to see LDK get the poly plant up and running and get the debt from the poly plant construction paid down before moving on to the next large scale program," said Soleil Securities analyst Paul Leming. "It's very clear that LDK knows only one speed, and that's 'damn the torpedoes, full speed ahead,'" the analyst added.

Solar is a commodity business and increasing market share means engineering lower costs. LDK is merely moving in the direction of all the Chinese solar players, whether it is a solar cell player like JA Solar (JASO) moving into solar modules, a solar module leader like Yingli Green Energy (YGE) moving into polysilicon production, or a relatively new entrant like Jinko Solar (JKS) moving out from polysilicon production to all aspects of the solar supply chain.

LDK purchased a solar module maker earlier in the year, and signaled at its last analyst meeting that it would be looking to further vertically integrate. With polysilicon production at one end, wafers in the middle and solar cell and module production at the other, LDK would be in a position to achieve cost efficiencies across the solar supply chain.
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