Crisis parting solar sector’s weak from strong

A global credit crisis and a steep slide in prices of solar panels has sent makers of the clean energy source reeling, but the damage done to share prices presents an opening for investors to buy into the stronger players.

Investors have fled the burgeoning solar sector in the past three weeks, sped along by a global financial crisis and warnings from sector heavyweight SunPower Corp and China's JA Solar that the declining euro would weigh on revenue and profits.

Chinese solar cell and module makers are the most exposed to a downturn, analysts and investors said, since they sell much of their product to Europe, have some of the highest costs, and some of the least differentiated products.

"You have two almost entirely different industries ... the valuations that some of the Asian cell manufacturers are trading at now are basically implying that people don't think they are going to survive," said Edward Guinness, co-manager of the Guinness Atkinson Alternative Energy Fund in London.

Shares of Chinese solar companies JA Solar, LDK Solar, Canadian Solar Inc, Trina Solar Ltd and Suntech Power Holdings Co Ltd all trade at less than 4 times 2009 earnings estimates, compared with multiples of 9.5 and 17 for U.S. firms SunPower and First Solar Inc, respectively.

"The companies in Europe or the U.S. have better name recognition," said Friedman Billings Ramsey analyst Mehdi Hosseini.

"When financiers have more risk because of a financial crisis, the quality of the product becomes a key issue. This is going to put more pressure on the Chinese."

Even with SunPower's warning that it was exposed to the euro decline, its strong balance sheet and industry-leading solar module efficiency should keep its future bright, investors and analysts said. First Solar, which also has deep pockets and the industry's cheapest production costs, is also in a strong position.

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Source: Reuters