Nov 4, 2011

here comes the sun?

The carnage going on in the solar industry is impressive. Take a look at this chart. This is First Solar. The biggest, most profitable solar company out there.

Total devastation. The CEO left not long ago. Some of this has been portrayed as Chinese companies dumping product onto the market but they aren't fairing much better. Here's Trina Solar.

These are impressive declines. What is going on? Classic cyclical market in a downturn. Everyone expanded when the market was strong and now finally it isn't strong. Governments have no money and the solar market needs subsidies to exist at the size it does today. Increasing supply and falling demand for what is basically a commodity product (no differentiation). Brutal.

And what's worse is that everyone keeps expecting things to bottom out but it just isn't happening. Just today Trina announced their shipping and pricing data and it's worse than expected. And they guided numbers for the third quarter HALF WAY THROUGH THE QUARTER. In other words things have become dramatically worse in the last month and a half since they gave that guidance. I'm not sure when it bottoms out.  It will at some point.

In some sense this is good because prices have dropped dramatically making solar that much more economical. But at the same time new innovative companies are having a hard time raising money to expand because there is no need for new supply. And the name of the game in solar is you need to be big to distribute your fixed costs over a large volume. So all of us in the industry just sit and wait for the bottom to finally show itself.

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