By
Toby Shute
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March 26, 2009
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Just like last quarter, Solarfun Power (Nasdaq: SOLF ) has ended the solar reporting season with a whimper.
Back in December, the company wrote down the value of its inventories by $12.9 million. This quarter's charge was a much heftier $47.8 million. Inventory write-offs were prevalent among Solarfun's peers in the period, but this charge was still roughly twice as big as the one taken by comparably sized Canadian Solar (Nasdaq: CSIQ ) , and more in line with the much larger Suntech Power (NYSE: STP ) .
Why am I concerned? Most of these inventory charges are a mark-to-market phenomenon, as the prices of polysilicon, solar cells, and solar modules have all taken a nosedive. Last quarter, Solarfun identified "some low-quality materials determined to be unusable" as a component of its write-off. On today's conference call, management conceded that the split was more like 50/50 between mark-to-market and "a B-grade unsalable product in this environment."
Lower-quality solar products had their place when supply was constrained, but the landscape has changed. Solarfun will need to bring its A-grade solar goods from here on out if it wants to keep the lights on.
Like China Sunergy (Nasdaq: CSUN ) , Solarfun said "so long" to its chief financial officer at the same time as it released its financial report. I wouldn't get too hung up on that point. CFOs have job mobility like any other employee or executive, and they will come and go. I'm more concerned about the amount of working capital that Solarfun has tied up in net supplier advances. The figure comes in at 84%, dwarfing comparable figures sported by Canadian Solar or Yingli Green Energy (NYSE: YGE ) , even after adding in those firms' advances categorized as non-current assets.
Given the macro environment, I'd be looking elsewhere for a solar investment that's considerably more liquid.
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