Solar Equipment Sales to Boom Again by 2017

Posted: February 27, 2014 by mattmargolis24 in Uncategorized
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PV magazine covered some recent predictions (1/30/14) from Solar Buzz on Solar Capital Equipment.  The key excerpt is below:

Capital expenditures for equipment suppliers serving the PV manufacturing sector will begin increasing at the start of 2015, NPD Solarbuzz predicts in its latest PV Equipment Quarterly, with PV equipment spending potentially reaching $10 billion in revenues in 2017.

“During 2012 and 2013, solar PV equipment suppliers were confronted by the sharpest downturn ever to hit the sector,” said NPD Solarbuzz Vice President Finlay Colville. “The decline was caused by strong over-capacity that reshaped the entire PV industry in 2012, which resulted in manufacturers’ capital expenditure budgets being put on hold during 2013.”

For 2013, PV equipment spending – including tool revenues from crystalline silicon (c-Si) makers of ingots, wafers, cells, modules and thin-film panels — declined to an eight-year low of $1.73 billion. This drop contrasts sharply with the previous cyclical peak of approximately $13 billion in 2011, according to the report.

The Obscure Analyst’s Takeaway
$10B of capital in 2017 is a lot of money.  GT Advanced Technologies is set to be one of 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).  In 2011, Solar Equipment sales peaked at $13B.
GT received PV equipment bookings of $900M in 2010 and $220M in 2011 (average of $560m over 2 years).  On the revenue side  GT recognized PV equipment revenue of $870M in 2010 and $530M in 2011 (average of $700M over 2 years).   GT is better positioned to capture a better market share in the pending increase in solar equipment sales.  It seems reasonable to me that GT’s annual bookings and recognized revenue will be running at $600M by 2016.  GT is expected to recognize only $11M in PV revenue as they work down the backlog from $11M to $0.  $600M of estimated PV sales in 2016 at a 30% gross margin would contribute an incremental $0.55 EPS to GT’s bottom line versus 2014 estimates.  GT guided 2016 at $1.50 minimum.  If GT earned $0.55 from PV equipment in 2016, it would represent 37% of managements total guided EPS of $1.50.  Something is up, the fact check on the math sure seems to contradict GT CEO’s comments (below) that solar will become a much smaller percentage of our business in the coming years,
Solar will continue to be a part of our portfolio, however, as our diversification initiatives get traction, we expect that it will become a smaller percentage of our business in the coming years.
There is only one truth.  GT’s CEO diversification strategy is real, the seeds have been planted and his outlook that solar will be a smaller percentage is accurate and confirmed by my model.  I am modeling 2016 PV equipment sales at $600M and a $0.55 EPS contribution in 2016.  There are only a few ways to reduce the solar % total of overall EPS guidance.  #1 Reducing the solar estimate or #2 increase the base case EPS guidance of $1.50.  I think you know my answer, yes you got it!  GT Management is sandbagging on their overall 2016 EPS estimate by $’s and not cents.
Full Disclosure: I am long GTAT and have no plans to buy or sell any holdings in the next 72 hours.

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