FBR Capital released a note with very negative tones about the solar industry this morning, warning that it expects “revenue/margin pressure” for the solar industry and “significant downward revisions to consensus EPS estimates” and ultimately, it “encourages profit taking into 1Q09’s earnings reports/conference calls.”
Many analysts and observers are turning in negative research and notes on the solar industry. Last week, Cowen (via Barron’s) cut it’s revenue estimate for LDK (LDK) by $200 million for the year, and said the company would probably have to writedown inventory further. Also on Barron’s Raymond James downgraded GT Solar (SOLR). iSuppli (via PV-Tech) last week forecasted PV installations to fall 32% this year to 3.5 GW from 5.2 GW a year prior, with a 12% decline in average price per watt causing global solar revenue to drop 42% to $18.2 billion for 2009, versus $30.5 billion in 2008.
FBR thinks there’s four reasons to be sceptical about the solar industry:
Excess capacity brought on by lack of demand: The majority of solar installations are still small projects, less than 3 MW. Larger utility scale projects are suffering because of a lack of financing. As excited as everyone is over China it’s already built into the models, and current field data suggest there is as much as 2 to 3GW or more of industrywide excess capacity over the next 12 to 18 months.
Sagging prices: There was a 20% quarterly decline in prices for Q109, and that will continue into the second quarter, and possibly the third as well. This keeps margins under pressure.
Bad managment: Many companies are slowing production, but it’s not enough. They need to put a brake on the production, because there aren’t enough customers out there. Additionally, management isn’t being realistic about their gross margins.
Replace Spain with China and you have a repeat of 2008: Last year at this same time there was a rush of excitement over Spanish solar subsidies, just like there is now for China. That bubble eventually burst, and FBR thinks it’s about to happen again.
While people are more sceptical this year than last, FBR thinks price and margin “pressure have yet to be fully dialed into solar stocks. Thus, we have become incrementally cautious into 1Q09’s earnings report/conference call.”
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