Tuesday, April 10, 2012

"Steve Jobs's Lesson for Solar-Power Bulls" (FS

Yesterday FSLR closed within 19 cents of its November 2006 IPO price.
From the Wall Street Journal's Heard on the Street column:
The birth of the mouse is a famous cautionary tale from Silicon Valley. In it, Xerox develops an early version of the now-ubiquitous PC pointer, but Steve Jobs and Apple actually make it ubiquitous. The warning—first movers don't always end up dominating a particular field—applies to another hot technology: solar power.

In June 2008, solar-panel manufacturers looked poised to conquer the world. The 12 largest had a combined market value of about $70 billion, according to Sanford C. Bernstein. Today, they are worth about $6.4 billion. One of them, Germany's Q-Cells, QCE.XE -8.61% filed for bankruptcy last week. On the same day First Solar, which alone was worth more than $20 billion in 2008, saw its stock slump by almost 8%. The company is now worth less than $2 billion.

First Solar has suffered several setbacks recently, not least having to make higher warranty provisions because its solar modules may suffer "increased failure rates in hot climates" (think about that one for a second.)

The bigger issue for First Solar and peers is a structural shift in the industry. In 2008, governments, particularly in Europe, offered generous subsidies to boost solar power; carbon caps in the U.S. seemed not far off; and financing flowed easily. Equipment manufacturers were expanding quickly and driving down costs to make solar power competitive with rival sources like coal and natural gas....MORE
...The bull case for solar power is that when prices drop low enough to compete without the aid of government subsidies, the resulting expansion of demand will boost the industry's fortunes.

Indeed it will. But the winners won't necessarily be the pioneers we are familiar with today. Rather, they will likely be companies with the scale to compete on price and absorb the inevitable cyclical losses that afflict most manufacturing industries prone to bouts of oversupply. A smaller group of large companies like General Electric, GE -1.51% for example, look more like the long-term winners as solar power eventually finds its place in the sun....