TSL

[David Randolph]

Nothing new on TSL, the valuation model says "sell only at $86.5", so I'll keep holding TSL.

[wxmang]

Hey Guys,

JFYI and only if you really want to take a position in TSL....
It is trading wildy today!
It is down 9% as of right now.
This would be a GREAT buying opportunity.
I put my money where my mouth is and just bought some more shares.

Wxmang

[magu]

Hi David:
TSL does not depend on polysilicone like JASO and others, and polysilicone is getting expensive because of its higher demand. would this give an advantage to TSL over the others?. i would appreciate your comments on this. thanks.

[BigSully1]

I'm not sure what you mean by they don't depend on polysilicon. they use recycled silicon though, and they (Trina) claims they can make ingots w/up to 80% reclaimed silicon, mostly from scraps from the tech sector such as broken wafers. They've already secured about 80% of silicon needs for 2007 and about 50% for 2008. Hopefully Trina will someday make their own silicon.

Much of the higher margins are believed to be in the cell and module side and not as much in wafering. I believe Trina recently announced the opening of their new cell line and should be in operation soon, if not already.

Ugly day for TRINA. I guess it should have been expected after the very steep extension from breakout just a short time ago.

[David Randolph]

When I came home from coffee to see how things closed and I looked at TSL, I honestly felt like throwing up. Down 12% on the day, it makes me sick. I bet it made me as sick as the people that sold in early March, between $42 and $35, when correction 1 unfolded:



The only difference between me and those people is that I have strong hands given by a reasonable fundamental analysis that shows me TSL will be back at new highs, if given enough time, because at current prices and given current fundamental trends, TSL is giving a 34% long term return to investors, and that return is unsustainable, that means, the stock needs to go up for return to go down:



It will probably take a couple of months or more, but I'm pretty much certain I'll be able to sell TSL at my $86.5 target, so I'll keep holding TSL.

Hi David:
TSL does not depend on polysilicone like JASO and others, and polysilicone is getting expensive because of its higher demand. would this give an advantage to TSL over the others?. i would appreciate your comments on this. thanks.

I'll work on polysilicone costs for tomorrow's update, thanks for the question Great research work BigSully, applaud

[magu]

Thanks for your answer and info  BigSully1 .

It is my understanding that Trina uses Monocrystalline Silicone which is much cheaper to produce than Polysilicone.

[yukiii]

pulledback to its 13 dma $56 is support, good bye if it hold tomorrow.

[BigSully1]

Thanks for your answer and info  BigSully1 .

It is my understanding that Trina uses Monocrystalline Silicone which is much cheaper to produce than Polysilicone.

Hey Magu, I didn't know that. Thanks for the lesson. But don't you mean silicon and not silicone?

[jorgegr]

pulledback to its 13 dma $56 is support, good bye if it hold tomorrow.

Believe 13ema and 20 ema are more appropiate in this case

[Garoh]

We will se a strong open today 

[David Randolph]

First of all let me copy/paste the WSJ article that soxguy gently posted on JASO's thread:

MarketWatch / Weekend Investor
Chinese Solar-Energy Companies
May Be Next Stocks to Burn Investors
By HERB GREENBERG
April 21, 2007

Years ago, when the disk-drive industry was booming and Seagate Technology couldn't add capacity fast enough, the company's chief executive -- the late Alan Shugart -- was asked what would happen when capacity exceeded demand. His answer was akin to, "We'll worry about it then."

Indeed they did, with layoffs, plant closings and price cuts -- something investors, who watched the share price slide, likely won't forget. Such is life maneuvering amid the boom-bust-boom world of technology, where the experience of Seagate is more the norm than the exception.

Next on tap to learn that supply-demand lesson the hard way just might be investors in the handful of Chinese solar companies that have gone public in the U.S. in the past year. These companies have come out of nowhere -- some reformulated from industries unrelated to solar -- to become stock-market darlings amid the recent infatuation with alternative energy.

The solar crowd includes such companies as Trina Solar Ltd., which has been in the solar business since late 2004 (it originally made aluminum siding) and now has a market value of more than $1 billion after going public late last year; JA Solar Holdings Co., in business since May 2005, making products since April 2006, publicly traded in the U.S. since February and now with $1 billion-plus market value; Solarfun Power Holdings Co., which went public late last year and is now valued at nearly $1 billion; and Canadian Solar Inc., another recent initial public offering with China roots that started in 2001 as a maker of solar car chargers.


JA Chief Executive Samuel Yang says a few more Chinese solar upstarts are believed to be waiting in the wings to do an IPO. Plenty more, he says, are looking for ways to cash in on the boom, including companies that used to make clothing and shoes. "Everybody thinks it is such a lucrative industry," he says. To a large extent, it has been. Most of the young publicly traded companies have posted impressive sales and profit growth. That's right: they are posting profits -- lots of it.

But before investors get too excited, consider that much of that growth has been tied to sales in Germany, the largest market for solar energy, where purchases for large fields of solar panels have been subsidized by the government. Piper Jaffray & Co. analyst Jesse Pichel, regarded as one of the most seasoned in a rapidly growing field of solar analysts, says that is why he regards much of the sales and profit at these companies as "funny money" and "welfare." "There's a lot of risk that the subsidies don't continue in Germany and I think they will get reduced," he says. That, in turn, will cause demand to slow.

That gets us back to this whole supply-demand thing. When supply outstrips demand, prices tend to fall. That is something to keep in mind because even as demand is slowing, many of these companies are pulling out all stops to expand capacity -- and they are doing it as more competitors are springing up. Consider Canadian Solar, which makes solar panels, which contain solar cells that absorb sunlight. It attributed a fourth-quarter loss in part to a decline in prices even as plants are running around the clock. "We're expanding capacity, but we're expanding to meet firm orders," Chief Executive Shawn Qu says.

While demand in such countries as Spain, South Korea and the U.S. may strengthen, and the business as a whole may get much stronger in future years, Mr. Pichel says it isn't rising as fast as the growth in capacity. As a result, he believes profit margins will continue to come under pressure for the time being as companies start selling below market prices to gain share. Mr. Yang and Mr. Qu believe there will be a shakeout in the industry and that their companies, as low-cost providers, will be among the survivors. Executives of Solarfun and Trina couldn't be reached. Still, between here and there -- wherever there is -- a lot will happen before it gets sorted out. Meantime, there is likely to be a comeuppance that investors in these companies will wish they had anticipated -- as was the case with Internet stocks, memory-chip stocks and, oh yes, disk-drive stocks. History, on Wall Street, has a way of repeating itself.

[David Randolph]

Since the above is an article published on the WSJ weekend edition that will likely have a short term impact on TSL and JASO, today's update will be dedicated to it (I'll take care of the cost of production issue over the next update):

Years ago, when the disk-drive industry was booming and Seagate Technology couldn't add capacity fast enough, the company's chief executive -- the late Alan Shugart -- was asked what would happen when capacity exceeded demand. His answer was akin to, "We'll worry about it then."

Indeed they did, with layoffs, plant closings and price cuts -- something investors, who watched the share price slide, likely won't forget. Such is life maneuvering amid the boom-bust-boom world of technology, where the experience of Seagate is more the norm than the exception.

Bad example. Seagate is still 88% above its $11.50 debut price in November 2002. And the stock tripled shortly after the IPO:



Another addition to this is that STX today is a $11.8 B market cap company, about 10 times larger than any of the solar companies the article talks about. If Seagate is a problematic company I wonder what a good company would be like for Herb Greenberg.

Next on tap to learn that supply-demand lesson the hard way just might be investors in the handful of Chinese solar companies that have gone public in the U.S. in the past year. These companies have come out of nowhere -- some reformulated from industries unrelated to solar -- to become stock-market darlings amid the recent infatuation with alternative energy.

Like Tokyopua said on JASO's thread, many other companies changed their business completely and are now some of the largest companies in the world, like Hitachi in Japan that was a shipping company before being high-tech, and Nokia, which before doing mobile phones was a paper and rubber company.

You could also say, about Google: "this company was formed just a few years ago by two college kids, how can it now be worth $150 B?"

The solar crowd includes such companies as Trina Solar Ltd., which has been in the solar business since late 2004 (it originally made aluminum siding) and now has a market value of more than $1 billion after going public late last year; JA Solar Holdings Co., in business since May 2005, making products since April 2006, publicly traded in the U.S. since February and now with $1 billion-plus market value; Solarfun Power Holdings Co., which went public late last year and is now valued at nearly $1 billion; and Canadian Solar Inc., another recent initial public offering with China roots that started in 2001 as a maker of solar car chargers.

The article has the merit of making me go deeper on my search for information related to JASO's market cap and number of ADS outstanding. I'll write about this issue on JASO's thread.

JA Chief Executive Samuel Yang says a few more Chinese solar upstarts are believed to be waiting in the wings to do an IPO. Plenty more, he says, are looking for ways to cash in on the boom, including companies that used to make clothing and shoes. "Everybody thinks it is such a lucrative industry," he says. To a large extent, it has been. Most of the young publicly traded companies have posted impressive sales and profit growth. That's right: they are posting profits -- lots of it.

We have what, 4 or 5 Chinese companies making solar cells in the stock market now. What if they're 10 or 20, do you see any problem with that? I don't, because solar energy is going to be a huge sector in the future, perhaps as big or even bigger than the oil sector.

But before investors get too excited, consider that much of that growth has been tied to sales in Germany, the largest market for solar energy, where purchases for large fields of solar panels have been subsidized by the government. Piper Jaffray & Co. analyst Jesse Pichel, regarded as one of the most seasoned in a rapidly growing field of solar analysts, says that is why he regards much of the sales and profit at these companies as "funny money" and "welfare." "There's a lot of risk that the subsidies don't continue in Germany and I think they will get reduced," he says. That, in turn, will cause demand to slow.

I don't think this man knows how politics works in Europe. When subsidies are put in place, especially if they're related to energy independence and the environment, they last decades. Germany always leads Europe, next will come France, Spain, Italy, the Uk, etc. Even Portugal just started subsidizing solar energy and GE built the largest "solar farm" in the world in Alentejo, a Portuguese province.

That gets us back to this whole supply-demand thing. When supply outstrips demand, prices tend to fall. That is something to keep in mind because even as demand is slowing, many of these companies are pulling out all stops to expand capacity -- and they are doing it as more competitors are springing up. Consider Canadian Solar, which makes solar panels, which contain solar cells that absorb sunlight. It attributed a fourth-quarter loss in part to a decline in prices even as plants are running around the clock. "We're expanding capacity, but we're expanding to meet firm orders," Chief Executive Shawn Qu says.

Slowing demand? Supply outstripping demand? I believe the author is looking 10 years down the road, he's like talking about the technology sector in the early 1990's, eight or nine years ahead of the curve. The use of sunlight to produce electrical energy is just starting, I believe anyone with a bit of common sense sees that.

While demand in such countries as Spain, South Korea and the U.S. may strengthen, and the business as a whole may get much stronger in future years, Mr. Pichel says it isn't rising as fast as the growth in capacity. As a result, he believes profit margins will continue to come under pressure for the time being as companies start selling below market prices to gain share. Mr. Yang and Mr. Qu believe there will be a shakeout in the industry and that their companies, as low-cost providers, will be among the survivors.

Companies like TSL and JASO are building the future of the planet Earth using renewable and clean sources of energy like the sun. And they're making it in an affordable and economically sensitive way. Finally a few companies are able to do that, using very cheap and competitive Chinese labor force. And Herb Greenberg writes this article trying to spoil this major achievement. Fortunately he's just another man with an opinion that will be able to take stocks down at Monday's open, but not much more than that, I believe.

Still, between here and there -- wherever there is -- a lot will happen before it gets sorted out. Meantime, there is likely to be a comeuppance that investors in these companies will wish they had anticipated -- as was the case with Internet stocks, memory-chip stocks and, oh yes, disk-drive stocks. History, on Wall Street, has a way of repeating itself.

There's no bubble in these Chinese solar companies. Internet companies in the late 90's had little revenues and huge losses. That's not the case here, where we have extremely strong revenue growth and really fat profits. The comparison doesn't make any sense. Even admitting there's a bubble in Chinese solar energy related companies (which I don't admit) that bubble would be just starting.

All in all, the article doesn't change my views on TSL, it reinforces them. As for JASO we'll talk on that stock's thread, but there's conflicting information about the number of ADS outstanding.

I'll keep holding TSL.

[stocky]

I agree that Solar companies with real profits and sales may prove to be bigger opportunity then the Internet dot coms. Another company FSLR has lot of positioning by the walton family of Walmart. If they were not such a good business acume ppl they would not have been the largest private employer in US.

[BigSully1]

Late last year there was a rumor of a supply glut in Germany that shook solar stocks. That rumor just didn't pan out as evidenced by 4Q numbers that market conditions are not declining in Germany.  I believe Germany is still the fastest growing solar market in the world thanks to their new regulations. Some analysts believe that when you put solar power into the German context, what you're getting is a guaranteed payout for 20 years.

Solar power is still heavily dependent on governmant support and we are definitely seeing a rising global trend in that support. Italy and Spain are just beginning to promote support. And then there is US bill H.R. 550......

The Department of Energy expects worldwide electricity consumption to double by 2030, and all that energy's got to come from somewhere.

As to Trina's very large dependence on Germany, sure it's definitely some risk, but I think we will start to see Trina post rapid gains in other global markets also.

As far as I can tell, demand is greatly exceeding supply in this solar market and until proven otherwise, this sector has a great future ahead.

[David Randolph]

I agree that Solar companies with real profits and sales may prove to be bigger opportunity then the Internet dot coms. Another company FSLR has lot of positioning by the walton family of Walmart. If they were not such a good business acume ppl they would not have been the largest private employer in US.

Yes, the difference is there's real demand and real profits being made in the alternative energy sector right here right now, not just expectations of future revenues and earnings that we know now were totally wacky for most companies in the internet sector in late 99.

Late last year there was a rumor of a supply glut in Germany that shook solar stocks. That rumor just didn't pan out as evidenced by 4Q numbers that market conditions are not declining in Germany.  I believe Germany is still the fastest growing solar market in the world thanks to their new regulations. Some analysts believe that when you put solar power into the German context, what you're getting is a guaranteed payout for 20 years.

Solar power is still heavily dependent on governmant support and we are definitely seeing a rising global trend in that support. Italy and Spain are just beginning to promote support. And then there is US bill H.R. 550......

The Department of Energy expects worldwide electricity consumption to double by 2030, and all that energy's got to come from somewhere.

As to Trina's very large dependence on Germany, sure it's definitely some risk, but I think we will start to see Trina post rapid gains in other global markets also.

As far as I can tell, demand is greatly exceeding supply in this solar market and until proven otherwise, this sector has a great future ahead.

I couldn't have said it better BigSully1, you made today's update, thank you

Oops, we still have magu's interesting question about the difference in the cost of production between Trina and others:

Hi David:
TSL does not depend on polysilicone like JASO and others, and polysilicone is getting expensive because of its higher demand. would this give an advantage to TSL over the others?. i would appreciate your comments on this. thanks.

Well, I have 10% for net profit margin for both, TSL and JASO. This issue can lead me to increase my net profit margin estimate for TSL and perhaps lower it for JASO, so this is a very important issue. First of all the question I need to raise is: "is there an organized market for polysilicon and is the price of this commodity rising? By how much?"

Let me search for the answer to this question. It seems there isn't an organized market for polysilicon. There's a lot of talk about a severe shortage of the material, but apparently supply is also expanding at a very rapid pace:

Increase in Polysilicon Production May Not Ease Chinese Shortages

The world wants to use the power of the sun to generate electricity and then put everything electrical to suppress the constant and dangerous need of oil. Germany's government took the first step, subsidizing Chinese manufacturers to get them producing affordable solar panels. But others will follow. I bet that when the Bush administration sees what the Germans are doing, it will follow suit. The West wants to diminish the Muslim countries power by reducing our need for oil.

These global political trends usually last decades (or maybe even centuries).

I have to dig more on this polysilicon issue, mainly the difference between TSL and other producers.

I'll keep holding TSL.