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A few weeks ago, the solar industry was on a long run higher that started when investors, once worried about demand in 2010, saw the industry selling modules as fast as it could make them. And now the entire sector is getting crushed because analysts think demand will be flat in 2011 and margins might fall. I swear we've seen this movie before...
So what is it?
I don't have inside industry contacts or a team of minions to go around getting tidbits from developers around the world, but I do rely on management at solar manufacturers to give me hints about demand. They might not be the best sources, but they do run the company so there's a possibility they know what's going on. Here are a few highlights from recent conference calls:
- First Solar (Nasdaq: FSLR ) said the majority of its production has already been sold for 2011.
- JA Solar (Nasdaq: JASO ) has agreements and received prepayments from customers for 1.2 GW of its 1.35 GW to 1.45 GW of capacity for next year.
- At Sunpower (Nasdaq: SPWRA ) the CEO Tom Werner says "demand is greater than the supply" and the North American commercial business is "70% booked for 2011."
- This week, Suntech Power (NYSE: STP ) said analysis of customer demand saw "it was 30% above our ability to supply for the entire year."
Maybe these analysts know something I don't but it doesn't sound like the major solar manufacturers will be suffering through 2011.
Solar has been through this before. There are always worries that supply will outpace demand, and in the end demand has always shown up from somewhere. To give you an idea how accurate the solar analyst causing the ruckus this week has been, Satya Kumar of Credit Suisse increased his forecast for 2010 solar installations from 10 GW to 12.7 GW in late March. More recent forecasts are saying 2010 will actually see installations of 15.8 GW of solar capacity -- a whopping 58% off his original prediction and nearly 25% more than his revised number in less than eight months!
There is no doubt that 2010 has been stronger than most expected, and a softer 2011 could materialize, but I have yet to hear solar companies with anything but positive demand outlooks for 2011. In addition to the comments above, Solarfun (Nasdaq: SOLF ) sees "healthy market demand" going forward and is adding capacity accordingly. Evergreen Solar (Nasdaq: ESLR ) was the least bullish on 2011 demand, but it is just starting to talk Q1 pricing with customers.
All in all, I think this is a typical panic in the solar sector, and as the picture clears up these stocks will come back up. But be ready for another panic in six months because it's either up or down for solar stocks. They're never steady.
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