Ein reiner Suntech-Thread

In general, I think there is underestimated room for improvement for polysilicon-based marginal costs. First, new technologies are enabling cheaper production techniques of c-Si panels (using less polysilicon for the same efficiency), which STP is exploring. Second, polysilicon prices have been free falling. This is going to seriously strain thin film companies, Third, STP's expanding wafer manufacturing capacities will continue to give it greater scale and cost-savings in production, while the fall in polysilicon prices will complement the effects. STP has said they expect to see at least less than $1 per watt by 2013 and I think this seems achievable, perhaps even sooner. Given these considerations, I see a greater upside (though still lower) in cost per watt for STP, but the better grade still goes to FSLR.

2. Efficiency

FSLR: Current C+, Long term B+
STP: Current B, Long term B+

STP has, for the time being, slowed its pace in developing more efficient modules--to around 17-18% (a c-Si average), while FSLR has steadily improved their efficiency to about 13-14% in mass production. I don't see a large long term upside for STP, but instead improvements in production processes and additional technologies that allow them to use less polysilicon and maintain the same efficiencies. In the near term, this will really help with cost as well. CdTe certainly has more growth potential in terms of efficiency and I don't think a 18-19% target by 2013 is unreachable. Overall, I think this factor is less important. A possible upcoming recession, as well as new, undeveloped technologies (such as CIGS) will remain more significant factors than 2-3% differences in current and near term efficiency levels.

3. Geography and Diversification

FSLR: Current B-, Long term B
STP: Current B, Long term A-

FSLR is based in the United States in Tempe, Arizona. It's geographical spread is roughly: 60% Europe, 30% North America, and 10% Asia-Pacific. STP, based in China, has the following market concentrations: 53% Europe, 5% China, 22% United States, and 20% in the rest of the world.

FSLR has a larger US and North American presence, while both firms have large European presence. The fall in European and US subsidies over the next couple years (or more) will hurt both companies, but likely FSLR more than STP because of Suntech's greater diversification. More importantly, Suntech is going to tap heavily into the China market, expecting 20% of its sales from the region within the next couple of years. This will be a large upside for STP's market reach, and given their size and their Chinese roots, they will likely win out over smaller Chinese firms and equally large foreign firms like First Solar (especially with those Chinese subsidies still coming in). FSLR is improving its global reach, but I don't think it will be able to match STP in this category.

4. Debt Issues

FSLR: Current B+, Long term B+/B
STP: Current C-, Long term B-

STP is completely saddled with debt, and I think at a microeconomic perspective, this is one of their largest problems. They have almost doubled their short term debt from $943 million to $1,669 million YoY, while increasing their long term debt from $674 million to $766 million. This gives them a total debt to equity of 1.47, a current ratio of 0.92, and a debt/total asset ratio of 0.45. Their $768 million is a decent sum but won't be enough to remain financially healthy during a recession or worse, especially when EBIT is hovering near 0 (subtracting the losses from one-time shut down operations). Overall, I think having China as a benefactor will be STP's major get-out-of-jail free card if they ever run into serious trouble. In the long run, these debt problems should alleviate when the global economy hurdles our current debt crises.

FSLR is much less debt-saddled, though debt will likely be a future problem and will continue to be a problem in a demand-deflated environment. First Solar has tripled long term debt from $113 million to over $300 million YoY, while leaving short term debt relatively constant at $28 million. This gives them a much healthier total debt to equity of 0.10, a solid current ratio of 3.10, and a debt/total asset ratio of 0.08. I don't see this category improving much for them if they expect to maintain funding to support expensive efficiency-improving and production scaling development projects, at least in the next 2-3 years.

5. Value

This category is a large win for both firms, as they are both undervalued, but STP much more so than FSLR.

FSLR: P/E of 10.8, P/B of 1.5
STP: P/E of 2.3, P/B of 0.2

The market capilizations of these companies is also significantly different: about $393 million for STP and $5,320 million for FSLR. By looking at the balance sheets of these companies and their long term expectations, I don't see First Solar as worth 14 times more than Suntech Power. This gap is going to make for a large correction in the next year or two. At almost $2 a share, I have to consider Suntech a steal, even given its current woes and near term difficulties. At around $60 a share, I also consider First Solar at a bargain price.

"X factor"

Suntech's X factor is their diversification, geographically and by product. Many investors aren't aware that Suntech has also been pouring money into thin film since 2008, and while some of these projects have been put on hold due to the recession and the more profitable c-Si opportunities, Suntech will still be able to develop a foothold in thin film within the next 4-5 years. Additionally, Shi Zhengrong, STP's CEO, spent years at a thin film research firm before founding Suntech Power. He understands thin film (and knows its potential) very well, as does most of his management team, who have also come from thin film backgrounds. This is why I see Suntech not just as Chinese polysilicon solar but as global PV solar.

For First Solar, their X factor is definitely their intellectual property for thin film. FSLR's IP will be a huge boost during these down times, as firms will struggle to compete if they can't copy the rewarding technologies that FSLR is developing on a quarter-to-quarter basis. Although much of the most important property rights are only covered for the next 3-4 years, if another recession occurs, FSLR could find themselves with much less competition to worry and could profit handsomely

Conclusion:

Buy both STP and FSLR if you can in the near term. Expect declines to continue if the economy worsens, but the more they fall the more they will rise in the long term. If you must pick one, I would opt with Suntech Power. They are losing to First Solar in the short term, but I can only see upside for Suntech Power in the long term.

seekingalpha.com/article/...h-power-vs-first-solar?source=feed

Over the coming months, surplus capacity and falling prices will trigger a shakeout in which only the fittest and best-positioned companies, such as First Solar, Solarworld and Suntech Power, will survive. This is the conclusion of the latest sustainability study "Solar industry: Survival of the fittest in a fiercely competitive marketplace", in which Bank Sarasin performs a fitness test on the leading listed photovoltaic (PV) cell and module producers. #800080">However, the shakeout will ultimately have a positive impact on the industry as a whole by improving overall growth prospects. New sales markets and additional applications for solar energy will encourage newly installed PV capacity to rise by an annual average rate of 18% to 2015. A shakeout of the solar industry is inevitable as the imbalance between production capacities and demand has become too great with around 50 gigawatts (GW) of production capacity for solar modules compared with sales of 21 GW at the end of this year. Small and uncompetitive companies which are inadequately financed will not survive. In contrast, companies that are internationally diversified and vertically integrated - allowing them to cover several production stages autonomously - have a very good chance of emerging stronger. The companies best positioned for the next stage of growth in the PV market from 2013 onwards include Suntech Power, Trina Solar and Yingli Solar from China, First Solar and Sunpower from the USA and Solarworld from Germany. The companies under the most threat are mainly small to medium-sized companies with comparatively modest growth prospects, such as Germany's Conergy, Q-Cells, Solar-Fabrik and Sunways. #800000">PV market forecasts up to 2015 Bank Sarasin predicts newly installed global PV capacity will reach 21GW by the end of 2011. This is equivalent to a growth rate of 3%. In 2012 the PV market will go through a difficult transitional phase, particularly in Europe. In global terms, demand could still increase by 20% in 2012, fuelled by booming markets in the USA, China and Japan. During the period 2010 to 2015 global installations will grow annually by an average of 18%. However, Europe's solar market will shrink by approximately 3% a year during this period. India will see the strongest growth: Bank Sarasin predicts annual growth of 101% for this market. The broader geographic distribution of new installations will intensify even further over the coming years. By 2013 more than 10 PV markets will each achieve an annual installed capacity of 500 megawatts (MW). PV markets will not only become more diversified in geographic terms but also in terms of the different applications for solar installations. The most successful companies in the future will be those who not only sell solar modules but can also develop and offer new products and services. Falling costs will enable solar energy to reach grid parity soon Over the past 10 years, PV has achieved the steepest cost-cutting rate of all forms of renewable energy and is therefore rapidly reaching a competitive price level. In the next few years, solar power will achieve price parity with the end-user tariff in more and more regions. As a result, solar energy will no longer be dependent on national subsidy programmes. Brief description of the three main solar energy technologies Photovoltaics (PV): Converting sunlight into electricity. Solar cells, usually made of silicon, produce an electrical current from sunlight (photoelectric effect), generating electricity which can be stored in batteries or fed into a public grid. Solar collectors: In a thermal solar installation, black or blue-tinted absorbers housed in collectors are heated by the sun's rays. This heat is collected in a storage medium and used to power domestic hot water systems. Concentrating Solar Power (CSP): CSP installations use the heat converted from sunlight to generate electricity. The sun's rays are concentrated by a system of mirrors and the collected energy is used to produce steam. This steam is then used to power a turbine that generates electricity, as in a conventional power station. Thin-film photovoltaics (TFPV): market leaders expand their capacities An industry shakeout is also well under way for manufacturers of TFPV modules. Only about 100 companies are now active in the market compared with 150 in 2010. The top companies are rapidly expanding their capacities. By 2013 all of the top-10 companies will therefore have minimum production capacities of 500 MW each. Economies of scale and a low cost structure, as well as good bankability, are important success factors for thin-film companies. Boosted by large, financially strong corporations such as First Solar, Sharp, ShowaShell, GE and Hanergy as front runners, thin-film technologies should be able to achieve average annual growth rates of 32% up to 2013. CSP plants feel the pressure CSP installations are still expensive compared with PV systems. It is difficult to trim the costs of CSP plants because of the high material and labour costs required in their construction. The most important niche for CSP technology continues to be in hybrid power stations. Their use in combination with gas-fired or coal-fired power stations seems to be very lucrative, especially in the Middle East, North Africa, Southeast Asia, and South America, and saves on fossil fuel costs. Given the tougher competitive situation, CSP capacity is set to grow at a slightly more leisurely rate of around 17% on average over the next 10 years. Bank Sarasin predicts cumulative capacity of 28 GW by 2020.