A Scrappy Solar Player

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Yesterday, investors responded enthusiastically to Canadian Solar's (Nasdaq: CSIQ) fourth-quarter results and first-quarter outlook. Quarterly revenue rose 31% sequentially, and quarterly earnings reversed the loss from the prior-year period. This quarter, gross margins are projected to expand, despite China's recent wintry blast.

This company chose an unusual name; despite the location of headquarters, production occurs in China. The report was so sunny that other Chinese suppliers like Yingli Green Energy (NYSE: YGE), Trina Solar (NYSE: TSL), and LDK Solar (Nasdaq: LDK) got a brief respite from their 2008 trouncing.

Management's most interesting comment yesterday was that, beginning this quarter, the firm will be shipping modules utilizing upgraded metallurgical silicon. This might sound like first-class material, but it's actually scrappier stuff than the high-purity polysilicon in such short supply today.

As discussed in my piece on solar innovation, metallurgical silicon is actually polysilicon's relatively cheap raw material input, produced by commodity chemical manufacturers like Dow Chemical (NYSE: DOW) and Corning (NYSE: GLW) joint venture Hemlock Semiconductor. The difficult and expensive part involves refining the material to at least 99.9999% purity. But what if that process could be sidestepped?

That's the promise of upgraded metallurgical (UMG) silicon, an area of development I'd previously overlooked. One startup, CaliSolar, claims to be cranking out market-competitive, UMG-based solar cells in its lab. DARPA-backed Blue Square Energy is looking to commercialize a cheap solar cell involving a thin-film layer of pure silicon deposited on a UMG substrate, or base layer.

Because Canadian Solar has experience with reclaiming silicon scrap, it may have a leg up on these aspirants. If the firm finds success in this area, the company would become significantly more valuable in my eyes.

Related Foolishness:

• This Chinese player has recently been overshadowed.
• Why did solar stocks get clocked, anyway?
• Here I am playing solar swami.