Thursday, February 21, 2008

Instead of "Plastics Benjamin", in 2008 it's "Silicon Benjamin"

From Red Herring

Suntech Power Holding’s weaker-than-expected earnings report caused solar stocks to dip Wednesday and heightened fears that high silicon prices could dampen industry profits in coming quarters.

“This makes everyone wake up to the polysilicon constraint in the near-term,” said ThinkEquity Partners Managing Director Jonathan Hoopes.

He said he and his team had expected Suntech’s solar PV cell production to ramp up in parallel with its production capacity. But in response to high prices for silicon—a critical component of conventional solar PV cells—the company chose to maintain its margins and limit its production last year.

That meant the Chinese solar cell and module manufacturer reported 2007 earnings and revenue that fell short of analyst expectations. The company had $1.348 billion in revenue for 2007, an increase of 125 percent from the year-ago period. But analysts on average had expected $1.37 billion, according to a survey by Thompson Financial.

Suntech reported earnings of $1.02 per share last year on a GAAP basis. But analysts had expected $1.09 per share.

The company’s shares plunged $5.65, or 12.31 percent, at the end of trading. Other solar stocks followed Suntech’s drop. China-based LDK Solar’s stock was down more than 6 percent at the market close, and shares of California-based SunPower dropped nearly 4 percent.

New Energy Finance analyst Nathaniel Bullard said those solar companies with silicon-supply contracts in place will fare better than those without. The research firm predicts the limited supply of the critical material will continue until mid-2009, when lower silicon prices should pass through to lower module prices.

In the meantime, Mr. Bullard said the global market for silicon has little transparency and prices are highly discretionary. That means companies with longer-term relationships get better prices, and new entrants have little bargaining power because the deals are hidden, he said.

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