Industry life-cycle theory tells us that there are some predictable stages an industry will go through from the time it's born until it's replaced by something better.
In the nascent stage, an industry is trying to build an alternative product, establish itself, and define the ranges of the industry. The growth stage follows when everyone goes hog-wild building capacity and growing, but by the time an industry reaches maturity, a shakeout is already starting to begin. Weaker competitors fall off and a large number of competitors are often combined to form industry powerhouses. Eventually a mature industry declines, but we'll focus on the earlier stages in this article.
The solar industry is no doubt in the shakeout phase somewhere between growth, maturity, and in my opinion, another growth cycle. We've seen companies fail this year, and I think it's time for the industry to begin consolidating. Here are a few deals that make sense.
First Solar is bought out
As I wrote earlier this week, I think First Solar
The one downside is that GE doesn't have the history of innovation that First Solar might need to survive, but there's a company that should be interested in First Solar that does.
China buys China
It's unlikely that a company outside of China would be able to buy a Chinese manufacturer and keep the favorable short-term debt terms these firms have lived on, so I'm looking within China to buy Chinese manufacturers. As the most stable manufacturer, Trina Solar
As of the last quarter, Trina Solar had 1,900 MW of capacity to make cells and modules, but only 1,000 MW of capacity to make ingots and wafers. LDK is in the opposite boat with 3.7 GW of capacity to make ingots and wafers but only 1.3 GW of capacity to make cells. They would fit perfectly together.
With a market cap of just $433 million, Trina could easily buy the equity. LDK's massive debt load is another story, but I think Trina Solar could handle the debt with the benefits a deal would bring.
Other potential targets
Since most of the Chinese solar manufacturers are more or less the same company with similar equipment and similar cost structures, you could bolt almost any of them together to make an uber-manufacturer.
Something's gotta change
The way solar stocks are trading right now, the market is pricing in failure for almost all of these companies. To be sure some will fail, but there are opportunities for others to combine and make a more formidable solar manufacturer.
What two companies do you think would make a great combo? Leave your thoughts in our comments section and add these solar stocks to My Watchlist to keep up on all of the industry's actions.
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