Thursday, August 13, 2009

Solar: More Trouble Looms Ahead, Barclays Warns

We want more downgrades. More negativity. Until that happens the risk to the downside is what I'm focusing on.
From Tech Trader Daily:

The troubles for the solar sector are far from over, Barclays Capital analyst Vishal Shah warned this morning.

Formerly bullish on the group as a whole, Shah today reduced his sector rating on solar to Neutral. Shah says the Q2 weakness in solar company results represents a “secular, not seasonal decline.”

Pricing pressure, he contends, is intensifying. Shah says checks find Q4 module ASPs from Chinese companies could drop to $1.80/watt, worse than the $2/watt he had previously been expecting. “Given the overly optimistic demand outlook of most Chinese solar players and expectations of continued production ramps, we see additional downside risk to module pricing exiting 2009,” he adds. “More importantly, we expect 2010 module ASPs to decline by 25%-30%.”

At the same time, Shah warns that the supply/demand outlook is deteriorating, rather than improving. “We expect U.S. demand to pick-up at a slower pace relative to prior expectations and see potential downside risk to inflated demand expectations in China,” he writes. “Moreover, our updated supply outlook suggests that industry over-supply could persist in [the 2010 second half] until production capacity reductions occur at a rapid pace across the industry.”

For the Chinese solar stocks, he warns, earnings risk is to the downside. “Market share gains and not profitability is the motive for most Chinese solar companies - given the inflated opex/interest cost structures, operating break-even levels of of companies continue to increase and as such we expect companies to continue to produce even as overall profitability levels deteriorate.” As for the U.S. solar players, he says the outlook is “mixed at best,” given a pick-up which he thinks will be slower than expected....MORE