Hanwha SolarOne ( HSOL) recently took down its guidance, which had just been released a few weeks ago, saying order cancellations required the quick adjustment. The Q-Cells and SMA Solar reports heightened concern that Hanwha SolarOne may not be alone in needing to revise guidance lower, since most solar companies reported first quarter guidance before it was clear that Italy's solar market had ground to a halt pending an official announcement of new solar policy. Piper Jaffray solar analyst Ahmar Zaman said that the Q-Cells commentary surprised him in how conservative it was and it adds increasing risk that downstream names in the sector, like the Chinese module companies, will have to take down recent bullish guidance. On the German solar earnings outlook, the Piper Jaffray analyst said he thought it was a good read because they are reporting toward the end of the first quarter and have the ability to see how the first quarter has developed. He added that a company like Q-Cells, which had 50% of sales in Germany in 2010 and 30% of its sales in the rest of Europe, should have a good read on the current sales conditions. On the other hand, some contend that Q-Cells has struggled to keep pace with the low-cost Chinese module vendors and therefore, its weakness may be more specific than pervasive. Mark Bachman, analyst at Auriga Securities, went a little further in seeing a more benign, and even optimistic outlook for some solar companies in this negative German solar company commentary. "Of course we are concerned about peer reports; SMA more so than QCells, though...some commentary is opportunistic --- meaning while there is greater uncertainty in the market, and the stocks are generally in a stagnant holding pattern, management teams essentially get a free pass to lower expectations." "There's a divide right now. Clients telling me today 'these stocks keep going up' and my view is this is still sentiment driven. The longer term is great, but not the near term," said Piper Jaffray's Zaman. The analyst noted that the past few quarters provided easy sequential comps for solar earnings, but that won't be the case with first quarter results. "Especially for the downstream Chinese guys, it's going to be harder to beat and raise because the guidance they gave across board was very bullish, and effectively, I can see the whole month of March may have pushed out for these companies if Italy was at a stand-still," the analyst said. "All we need is one company to pre-announce negatively," Zaman added. Credit Suisse said in a note this week, "We reiterate our cautious stance on solar.... We think solar stocks can have 20-30% downside, especially given the recent stock moves higher due to the stronger Euro and positive sentiment on renewable following nuclear issues in Japan." The Piper Jaffray analyst remains bullish on solar, but as a way to avoid the short-term trading swings he has focused his best bets on the upstream part of the supply chain, and certain points in the supply chain where prices remain elevated, such as in the wafer market where ReneSola ( SOL) and LDK Solar ( LDK) are major players. While LDK Solar has been vertically integrated and has stated the goal of having the largest module capacity of any solar company by year-end 2011, the Piper Jaffray analyst is bullish on LDK Solar specifically because wafer pricing and polysilicon pricing -- LDK Solar also has a polysilicon production plant which it plans to spin off in an IPO -- remain high in the spot market, recently quoted as high as 90 cents to 95 cents for wafers and $90/kg for poly. Piper Jaffray has a buy on GT Solar ( SOLR) also, as a play on the upstream arms race in solar and with GT Solar being the major supplier of the furnace equipment for the production of solar's raw materials. GT Solar is also on a distinct sales cycle from the sector's downstream players, with orders for solar equipment having sales to shipment and construction cycles lasting longer than a year. Credit Suisse also sees polysilicon as a factor in upcoming earnings, but thinks that the pain is most likely to be felt in the second quarter results. "We think there is clear risk that earnings could decline q/q in 2Q11 for solar companies.... Despite a clearly weakening sell through into Italy, NONE of the companies we met are slowing production, which continues unabated at 100%. Capacity additions also remain on track, with instances of increased lead time for some types of equipment. This increased level of production is causing higher prices for poly, which could affect margins in 2Q11," Credit Suisse's Kumar wrote on Monday.
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