The State of the Thin-Film Photovoltaic Industry

There are currently three major thin film players (defined as the three companies with over $1 billion in thin-film assets): First Solar (FSLR), Sharp (SHCAY.PK) and Applied Materials (AMAT). There are numerous other thin-film startups that are in such early phases of development that it’s difficult to analyze potential production and capex costs if their technology ever matures. These are mostly CIGS companies and include Nanosolar, Miasole, Heliovolt, Ascent Solar (ASTI), DayStar Technologies (DSTI) and countless others. Most have struggled to get manufacturing efficiencies over 6% for industrial usage. This doesn’t include the aerospace panels which can achieve 20% but are incredibly expensive.

FSLR has been the industry leader for years, but can they maintain their advantages in the face of such fierce competition? All signs indicate that they indeed can. It has been common knowledge that FSLR’s technology is about two years ahead of all competitors. Many of the CIGS startups are at the same stage that FSLR was in 2006. They’re all operating in the test-plant phase before scaling up mass production.

Cramer has been bullish on FSLR since the summer of last year when it was trading at $50. I’ve been buying aggresively since it was at $33 and it now accounts for the majority of my invesment holdings. Cramer recently became so emphatic about buying FSLR that he went bearish on all other solar stocks, with the exception of AMAT, on the belief that FSLR would eat everyone’s lunch.
So, according to Cramer, AMAT is positioned #2 in the solar industry. As a supplier of production machinery, they are not in direct competitors with numerous thin-film producers and don’t have to worry about raising the heavy capital required for production. AMAT plans on selling $1.7 billion in thin-film equipment by 2009. This is a staggering amout which surpasses even FSLR. At first, this seems like very bad news for FSLR. When digging through the numbers, however, it may turn out to be quite the opposite. AMAT’s capex/watt is stated at $3/watt as opposed to FSLR’s $1/watt. Sharp’s capex has been reported at approximately $2 billion/GW, or $2/watt. This may or may not be accurate, since Sharp is also considering purchasing AMAT product.

Basically, $1.5 billion in AMAT equipment will have the annual production of $500 million in FSLR equipment. The fact that so many competitors are willing to pay triple for AMAT’s equipment shows the incredible lead FSLR has on the rest of the field. Secondly, AMAT has stated a goal of getting manufacturing costs of the panels down to $1/watt by 2010. FSLR, by comparison, has a goal of approximately $.60/watt by 2010 according to their grid parity roadmap. As of the end of 2007, FSLR’s manufacturing cost/watt was already at $1.12. Unless the dollar crashes further, which would slightly increase costs but greatly increase profits, they should break below $1/watt this year. Another indication of their two-year lead: reports are that 40% of the cost in manufacturing conventional solar panels comes from the silicon. At $1/watt, FSLR’s manufacturing costs would rival conventional PV even if their silicon was free. Recent forecasts indicate further polysilicon shortages well into 2009.

With $700 million in cash and the ability to raise billions more, it’s hard to imagine any of the smaller competitors chipping into FSLR’s two-year lead. The only thing that concerns me is whether bigger players with tens of billions in capital to invest, such as GE (GE) or BP (BP), get into the thin-film game. At their current pace of growth, FSLR’s lead may be insurmoutable in a few years when grid parity is acheived. With a three year backlog in product and a 30% operating margin, I feel FSLR has been too conservative in its growth plans. During their secondary offering last July, they diluted shares outstanding by 10% in order to essentially triple output by 2009. I had expected them to announce another stock offering and at least four new 160 MW plants in the first half of this year. This is in line with analyst expectations, judging by 2010 earnings estimates which top $8/share. There’s still a chance this might be announced upon earnings next month. The first to reach grid parity will see such explosive growth that their competitors will probably be relugated to “also-ran” status. In the solar arena, grid parity will be the same sort of monopolistic turning point which allowed Intel (INTC) and Microsoft (MSFT) to crush its competition in the late 80s/early 90s. Energy, a $5 trillion annual industry worldwide, is potentially even more rewarding.

Source: Andrew Ling,


~ by vascoteixeira on August 25, 2008.

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