Solar Stocks Get Their Day in the Sun

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Analysts are less sanguine about LDK's prospects for securing the polysilicon it needs for its solar panels at a discount to rising spot prices. The company, based in Xinyu City, China, and Sunnyvale, Calif., said on its last earnings conference call that it will buy 75% of its 2008 polysilicon supply at prices below the spot price.

In a press release, LDK estimated revenue of $960 million to $1 billion based on a projected 510 to 530 megawatts of multicrystalline solar wafer shipments in 2008, and predicted gross margins between 26% and 31% based on being able to produce 100 to 350 metric tons of polysilicon at a plant it's building in China.

In 2009, it expects to wafer shipments of 1,050 to 1,150 megawatts but the company reined in its forecast for polysilicon production to between 5,000 and 7,000 metric tons.

On Jan. 2, Jesse Pichel, an equity analyst at Piper Jaffray, upheld his sell rating on the stock, citing its high valuation and the lack of clarity around the cost of LDK's polysilicon supply and the timing of the ramp-up of its internal polysilicon production.

"LDK has not given any incremental transparency on its polysilicon plant startup," Pichel's note said. "We do not know where it will get the TCS feedstock plant design," a significant hurdle in producing its own polysilicon. (Piper Jaffray has provided investment banking services for LDK within the past 12 months and makes a market in its securities.)

Trichlorosilane gas is another major cost component without a closed-loop system that allows the TCS to be recycled.

Based on timetables for plant startups provided by a few domestic polysilicon manufacturers, Pichel questioned whether LDK would be able to produce meaningful volumes of the material until 2010, which would leave a hole in its supply needs for 2009.

If that turns out to be the case, the company's gross margin for 2009 would be less than half of its outlook of 42% to 50%, Pichel's note said. LDK may, however, have polysilicon contracts with reliable sources that haven't been announced, the note said.

Akeena's path to higher profits seems much more straightforward. Including the Andalay products, the company's revenue will nearly double this year to over $58 million from $31 million in 2007, said Yerger at Jesup. The licensing arrangement with Suntech will provide only a small boost in revenue, where the main benefit will be in the wider gross margins, he said.

Yerger estimates that Akeena will install roughly seven megawatts of Andalay panels in 2008, with another two megawatts worth to be sold through strategic distribution channels such as the Suntech deal. But the additional sales could be as much as 10 megawatts according to Suntech's estimate, he said.

While polysilicon prices continue to keep solar panels out of the price range of most consumers, technological advances that require less of the material to be used and cheaper installation options such as the Andalay technology may spur some customers to be more inclined to give solar power a chance.

And if that's not reason enough, rising oil prices may provide an extra incentive.

Bogoslaw is a reporter for BusinessWeek's Investing channel.