In a previous stage of solarmania, the shares of companies up and down the value chain seemed to press upward in unison. Now this borderline-bubbly market has seen a bit of bifurcation. While the clearestleaders bound higher, the wheels have begun to come off some of the shakier outfits.
China
Sunergy (Nasdaq: CSUN) was actually the vanguard in this regard. Storm clouds surrounded the company in July, when polysilicon supplies proved elusive. The squeeze prompted a second-quarter flameout and a management shakeup.
I scoffed at Sunergy's 5% gross margin back then, but that figure's looking downright dreamy compared to the latest number. Yesterday, the firm reported a 2.1% gross margin across its product mix. Had Sunergy not sold some precious polysilicon on the side of its core solar cell business, margins would have been even slimmer.
The company naturally reported a loss for the quarter, but here's a perverse little tidbit. If the share count hadn't ballooned by 47% sequentially, its per-share loss would have been quite a bit uglier.
China Sunergy is targeting doubled output in 2008, which could possibly bode well for the bottom line. Of course, that's assuming both that the firm will sign sufficient supply contracts with silicon slingers, and that these suppliers will be able to deliver in quantity and quality alike. On the call, management noted that a good deal of anticipated supply is coming from two start-ups. Contrast that with Suntech Power (NYSE: STP), which pegged "new entrant" supply at around 5%-10% of its 2008 polysilicon pile.
The company's base case, which assumes that the polysilicon pours in as expected, pegs gross margin at 4%-5% next year. That's about good enough to hit operating breakeven, in its estimation. Beating this forecast could prove difficult, given that long-term supply deals can require significant up-front deposits. This would likely force the company to issue more shares or debt at a time when cash is pretty tight.
China Sunergy doesn't have the cell efficiency of SunPower (Nasdaq: SPWR), the scale of Suntech, or the integration benefits of Trina Solar (NYSE: TSL) or Yingli Green Energy (NYSE: YGE). Though I hate to kick a company while it's down (except, of course, when it's totally justified), I see no reason to come within 500 feet of this stock. In other words, Fool, I order you to exercise restraint.
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