A company's name has rarely seemed a crueler joke to its investors than Solarfun
Solarfun reported Q1 2007 earnings just hours after rival solar power equipment maker (and Motley Fool Rule Breakers recommendation) Suntech Power
Investors' reactions to the two reports, however, couldn't have been more different. Suntech ended its earnings day down just 2%. But Solarfun fell more than 10 times as much: 23% on Wednesday alone. It's down another 4% or 5% today.
My Foolish colleague, Tim Beyers, has already covered Suntech's report; let's take a closer look at Solarfun's.
Like Suntech, Solarfun reported superb sales growth -- just to a lesser extent. Its 86% year-over-year sales increase was roughly half the blistering pace Suntech set. Like Suntech, Solarfun saw its margins take a beating in the first fiscal quarter.
In another key similarity, Solarfun also said it's "favorably positioned in terms of silicon supply for the remainder of the year." Later in the announcement, it revealed the source of this supply: recently IPO'ed LDK Solar
Solarfun blamed "delayed solar subsidy legislation in Spain and Italy" for much of its problems during the quarter. Looking forward through a half-full glass, management observed that "in the past month, all of our current module products were approved by the California Energy Commission to be eligible for the state's solar rebate program. With this, and new incentives set to be unveiled in Spain, we believe we are well positioned for the strong growth."
While that sounds good for Solarfun, it also highlights a key weakness prevalent throughout this industry: So long as solar-generated electricity costs more than its hydrocarbon-generated rivals, the fortunes of companies like LDK, Suntech, and Solarfun will depend largely on governments to subsidize the purchase of their products. Last quarter, we saw what happened when that willingness faltered in Europe. This Fool shudders to think what might happen for the higher-cost producers in this industry if and when it falters elsewhere.