Needham & Company Solar PV Industry Update: Lack of Demand Recovery Resulting in Continued Pricing Weakness

Needham & Company Solar PV Industry Update Volume 31: Lack of Demand Recovery Resulting in Continued Pricing Weakness

Analyst, Y. Edwin Mok, said, "We believe the solar industry continues to face more of a structural imbalance than a cyclical decline. Since the availability of capital drove production capacity to triple over the last 3 years, we anticipate the low barrier to entry will prolong major oversupply, resulting in continued pricing pressure. With sharply falling pricing came margin pressure in 2H11/1H12, driving margins well below the 1Q09 level. Currently, even cost leaders are only able to generate single-digitpercentage gross profits. We believe margins will likely remain depressed through 2012 before eventually improving. Looking forward, while rapid price declines are likely to be largely behind the industry, we believe prices will remain depressed as the industry may go through a slow, painful consolidation phase."

"We note that Enphase (Nasdaq: ENPH) is going public despite this challenging environment, as its healthy financials seem to paint a very different picture. In spite of falling module prices throughout 2011, Enphase was able to substantially grow revenue and margins, demonstrating its pricing power and market demand for its microinverters. Based on our checks with industry contacts and competitors, we believe demand will continue to grow for a “distributed inverter solution”, including microinverters or DC optimizers. However, we see several challenges that a microinverter company could face in trying to expand beyond a core small-scale installation business in North America. Going forward, we think it will be important to gauge this company’s success, and the ramifications on the solar inverter sector."

Other Stocks of Note: Trina Solar (NYSE: TSL), Yingli Green Energy (NYSE: YGE), JA Solar (Nasdaq: JASO), LDK Solar (NYSE: LDK), Suntech Power (NYSE: STP), First Solar (Nasdaq: FSLR), SunPower (Nasdaq: SPWR),

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