Q-Cells & the Solar Industry

It's amazing how quickly a high-flying industry can come crashing down to earth.

Producing solar cells and selling them in Germany sounded like a business model that can't fail: The German government guarantees generous minimum prices for solar-generated electricity. Interest-rates are down. Prices for solar panels are down. So you'd expect sales to go through the roof. In normal times, anyway.

But for the moment, people aren't buying. Financing may be part of the reason. A degree of saturation among potential investors another. Add slumping sales in the other big European market, Spain, where the government has decided to sharply reduce solar subsidies, and you have a recipe for an industry shake-up.

Market leader Q-Cells has just released its Q1 financials. Revenues are down 17 % from Q1 2008 (German revenues were flat, while export revenues dropped 40 %). Inventories are up sharply. And the quarterly loss (394 m €) is larger than revenues (225 m €). OK, it's not as bad as it looks, as the loss is due to the disposal of a previous acquisition (M&A is such a great way to stay busy and lose lots of money...). But even after eliminating this one-time loss, Q-Cells barely broke even due to a rapidly eroding EBIT margin caused by much lower prices.

Other industry players are doing even worse:

Solon, a producer of solar modules, saw sales crashing from 162 m € in Q1 2008 to just 38 m € in Q1 2009. Quarterly loss was 19 m €.

And Manz Automation, an industry outfitter, saw Q1 sales shrivel to 16 m € after 39 m € in Q1 2008, and recorded a loss of 5 m €.

All of these companies are solidly financed with a lot of equity, and all expect the market to pick up soon. Though if anything close to previous profit margins will ever return is rather questionable, considering fast-growing production capacity and increasing international competition, not least from China.

( For a previous post on the subject click here )