Last year was the year that alternative energy  was  set to take the world over.  High energy prices and election promises made green energy look like it had unlimited growth.  Then came the massive drop in energy prices. Then came the recession. Then came the lack of credit.  Combine all that with lower stock valuations and this is looking like solar companies will get hit with a wave of rolling blackouts.

Applied Materials Inc. (NASDAQ:AMAT) gave us the impression that what we are setting up for is the third wave of negatives for the sector.  What we saw out of JA Solar Holdings Co. Ltd. (NASDAQ: JASO) only adds fuel to that fire.   SunPower Corporation (NASDAQ:SPWRA) and GT Solar International Inc. (NASDAQ: SOLR) are both up since their earnings, but these might not be representative of the whole group. Investors’ negative bias toward te will effect  earnings expectations for Suntech Power Holdings Co., Ltd. (NYSE: STP) next week and  First Solar, Inc. (NASDAQ: FSLR) the following week.

Applied Materials Inc. (NASDAQ:AMAT) has not been a leading  solar player in the past, but its comments illustrates the problems facing the industry. It seems far more cautious than many solar energy companies.   Applied Materials reported earnings this week and predicted that sales would not improve in the near-term. Problems are gaining in its solar operations.  While Applied sees a lot of growth opportunities, it has slowed its investment there due to lack of orders.  There was a year-over-year gain in the solar sector, but we heard a level of the solar equipment business currently being down as much as 50% in its crystalline-silicon solar sector.

Solar companies elsewhere probably do not give a hoot what Applied Materials loses or makes.  They probably don’t care about the profitability or lack there of at its solar operations either.  Not yet.  But along with factory closures, Applied said that it really doesn’t expect new contract orders in solar equipment for the next few quarters. It even gave the possibility that new solar orders might not be seen until 2010.

Shares of JA Solar Holdings Co. Ltd. (NASDAQ: JASO) are taking a beating after cutting its forecast last night.  It now sees 2009 revenue of $830 to $952 million, under analyst estimates of $993.8 million.  The commpany is not as cautious as Applied Materials, but its stock has also been more beaten up.  The company already cut its revenue projections by more than 20% in November.  JA Solar’s target for total production output is now 500 megawatts to 550 megawatts. The company’s “nameplate production capacity” is now expected to be 875MW by the end of 2009.  Shares are down “only” 8% on this because shares are down almost 90% from last year’s highs of $27.00.

SunPower Corporation (NASDAQ: SPWRA) is on the move.  It gave a positive earnings report at the end of January which pushed up the shares.  Its fourth-quarter and full-year results were above estimates, but it did lower expectations for 2009 to $1.40 to $1.90.  This was well under a prior estimate of around $3.00 but was given the “good enough for me” reception by traders looking for some growth and some value.

GT Solar International Inc. (NASDAQ: SOLR) also had earnings that were “good enough.”  It provides equipment and technology for the solar-power industry, and last week reported net income of $43.1 million or $0.30 EPS on revenue of $205.2 million.  These were huge percentage gains and earnings were above estimates. However, the company lowered sales and earnings guidance under estimates.  There have been some customers hurt by the credit and market malaise, but GT Solar  still sees growth.  Because of low valuations, the stock is up more than 35% since earnings.  It is simultaneously off well over 50% from its IPO last summer.

Suntech Power Holdings Co., Ltd. (NYSE: STP) is on deck with earnings next Friday.  The company raised its 2008 targets at the end of January, but said it sees impairment charges on investments.  The good news is that shares are up close to 10% since its January 23 guidance.  It also also suspended hiring 2,000 workers. This is in addition to already announced 800 workers.

What does that say for expectations in 2009?  Analysts are looking for an earnings decline on a slight revenue increase.  Those estimates have been rocked sharply lower over the last 90 days, and we are not sure that traders are going to take it too well if the company posts the losses expected as -$0.25 EPS for Q4-2008 and an expected -$0.02 for Q1-2009.

First Solar, Inc. (NASDAQ: FSLR) is one of the Holy Grail companies in the sector.  It is set to report earnings on February 24. Shares are currently around $140.00, well off of the $300+ highs.  But the stock is also up more than 60% from the lows just over $85.00 in November.  We have seen too many cracks in numbers elsewhere to agree with the long-term guidance or the analyst estimates.  The December 2008 quarter estimates of $1.30 EPS were $1.32 3-months ago.  The fiscal December-2009 estimates are $7.03 and that was $7.38 about 90 days ago.  Analysts have revenue estimates for last year at $1.22 billion and $1.99 billion for 2009.  Does more than 50% revenue growth and nearly 75% earnings growth sound overly optimistic?  It is possible, but there seems to be more risk of “errors to the downside” than positive surprises.

Right now there is a crack in the solar sector.  Shares have already been punished.  And punished hard.  But we are also seeing a run here on what is not good news, and in some cases, the stocks have been unfairly punished.

So we are very cautious on the sector. Guidance which may still be too aggressive.  Obama’s plans mayoffer some support if things start to get too bad.  The sector can’t implode.  But the two largest problems are lack of financing for many new projects and the notion that green energy projects are not at all competitive with energy prices anywhere around the current levels.

The ETF for the solar sector is the Claymore/MAC Global Solar Energy (NYSE: TAN) and it shows all of the sector woes in one spot.  This ETF volume has started drying up, and at $7.17 you can probably guess that it has been a dismal performer.  Its 52-week trading range is $5.40 to $30.79.  The sector will again have a day in the sun.  But the economy and credit markets need to be better, and ultimately it really does look like lower energy prices take away many of the ambitions of alternative energy.

Jon C. Ogg
February 12, 2009

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