Making Solar Modules is Not for Everyone (AMAT, FSLR, SWPRA, WFR, TSL, YGE)

There was a time, not so long ago, when thin-film solar PV makers like Applied Materials Inc. (NASDAQ:AMAT) and First Solar, Inc. (NASDAQ:FSLR) had a decisive cost advantage over crystalline polysilicon solar PV makers like SunPower Corp. (NASDAQ:SPWRA), MEMC Electronic Materials, Inc. (NYSE:WFR), Trina Solar Ltd. (NYSE:TSL), and Yingli Green Energy Holdings Co. Ltd (NYSE:YGE).  New developments are showing just how much this environment has changed.

Yesterday’s announcement from Applied Materials that it would quit making its integrated equipment for the thin-film manufacturers and sell only individual tools demonstrates the gains that the crystalline silicon companies have been making. In its announcement, the company said the thin-film market had suffered from several factors, “including delays in utility-scale solar adoption, solar panel manufacturers’ challenges in obtaining affordable capital, changes and uncertainty in government renewable energy policies, and competitive pressure from crystalline silicon technologies.”

As if to underscore the difficulty in competing with crystalline silicon modules, SunPower today announced a contract to build three solar plants in Italy totaling 11.1 megawatts. The company expects to start construction this month and finish all three plants by the end of 2010. SunPower is teaming up with an Italian solar park developer for this project, but earlier this year the company bought a privately-held company that added about 1,200 megawatts to SunPower’s solar project pipeline in Europe.

Along with First Solar and MEMC, SunPower is moving downstream in an effort to gain revenues and boost profits. Worries that Germany’s reduction in its feed-in tariff would stifle growth in that country have been alleviated, as new orders streamed in before the tax reduction took effect. Italy also plans to reduce its feed-in tariff, but not by as much and over a longer period than Germany’s cut. Both countries point to falling prices for solar modules as a reason to lower incentives to invest in solar energy. In Italy, for example, returns on investment in solar projects are expected to be greater than 10% even after the proposed tariff reduction.

Trina Solar, which earlier this year received a loan of $4.4 billion from the China Development Bank has so far spent none of the money on developing its project pipeline. In fact, it hasn’t spent any of the money on anything yet. Yingli, which received a loan of $7.3 billion, is not buying a project pipeline, but plans to boost its manufacturing capacity to take advantage of its position as a low-cost producer.

First Solar reports second quarter earnings next week, and analysts expect EPS of $1.60 on revenues of $541.14 million. These numbers are lower than the same period a year ago, and the company’s strong project pipeline should make the numbers an easy target.

Nearly every solar stock is advancing today, led by SunPower which is up more than 7%. Applied Materials, which will lay off 500 workers and spend $100 million on restructuring costs, is up nearly 3%, while First Solar is up about 2.5%, MEMC is up nearly 4%, Trina is up more than 2%, and Yingli is up nearly 4%.

Paul Ausick