A recent article titled “Solar Equipment to rise by more than 5 fold in 3 years” was published on February 19th courtesy of Wall Street Sector Selector. The article’s source, Solarbuzz is projecting capital spending will reach $13B by 2017, which exceed the “solar boom” of 2011 that registered $11B in solar equipment spending.
The reasons for the predicted boom are fairly simple:
The main reasons for this optimism lies in the fact that:
a) Tier 1 companies have become stronger over the last one year due to consolidation and are profitable
b) Increased spending will have to be made on solar cell efficiencies
c) Demand catch-up to supply.
The biggest beneficiaries of the solar capital upgrade cycle will be thin film solar technology, which is sometimes referred to as CIGs (Copper indium gallium selenide). Project scale, costs, and profitability will be extremely important for solar companies moving forward. As noted in the article, “CIGs technology has one of the best potential amongst PV technologies for improving efficiency and reducing costs”. The article also points out that Tier 1 suppliers (Trina Solar (TSL) and Jinko Solar (JKS) have been increasing capacity by scooping up bankrupt Tier 2 suppliers. The article recommends 3 solar equipment players to look at to take advantage of the upcoming solar equipment boom (Centrotherm, Applied Materials (AMAT) and GT Advanced Technologies (GTAT).
The Obscure Analyst’s takeaway: This time is different. The solar boom of 2011 and bust of 2013 as it relates to solar equipment has naturally corrected itself. The supply side of the equation has regulated itself by reducing the amount of players, which will lead to a steady and more predictable supply of PV. Oversupply that was created in 2011 will correct itself over the course of 2014 and the capital equipment upgrade cycle will begin in earnest by late 2H2014 as utilization rates are pushed to their limits. Furthermore, after analyzing the Solarbuzz growth projections it appears as though the global solar installations will grow more evenly over the next several years. The relationship between solar installs and solar equipment purchases should become more elastic and predictable. The solar marketplace is beginning to resemble the memory space after the weakest hands went bankrupt and the strongest hands purchased several bankrupt supplier’s for pennies on the dollar. Micron Technology’s 12-18 month chart represents just how quickly the memory space income statements improved after supply and pricing were under control after industry consolidation.