Our review of the sector includes three equipment and component suppliers and seven solar panel makers: Applied Materials Inc. (NASDAQ: AMAT), MEMC Electronic Materials Inc. (NYSE: WFR), GT Advanced Technologies Inc. (NASDAQ: GTAT), First Solar Inc. (NASDAQ: FSLR), SunPower Corp. (NASDAQ: SPWR), Suntech Power Holdings Co. Ltd. (NYSE: STP), Trina Solar Ltd. (NYSE: TSL), LDK Solar Co. Ltd. (NYSE: LDK), JA Solar Holdings Co. Ltd. (NASDAQ: JASO), and ReneSola Ltd. (NYSE: SOL).

Rather than looking for value plays in the industry perhaps we should instead look for potential survivors. At least five German solar PV suppliers have filed for bankruptcy and there have been reports that several of the second-tier players in China are failing as well. One German maker, SolarWorld AG, is leading an anti-dumping action against more than a hundred Chinese makers, and an initial ruling has imposed tariffs of around 35% on Chinese-made panels sold into the US. That won’t do anything but dampen demand further and cost US jobs in the solar panel installation business.

Applied Materials Inc. (NASDAQ: AMAT) traded at $10.47 and has a market value of around $13 billion. The consensus target price from Thomson Reuters is $13.64 and the 52-week range is $9.70-$13.94. Three months ago the target price was $14.47. Applied Materials has a dividend yield of 3.4%. The implied upside to the consensus target is 30%, and we note that the target is below the 52-week high.

MEMC Electronic Materials Inc. (NYSE: WFR) traded at $1.64 and has a market value of around $365 million. The consensus target price from Thomson Reuters is $5.24 and the 52-week range is $1.53-$10.61. Three months ago the target price was $6.14. MEMC does not pay a dividend. The implied upside to the consensus target is 220%, and we note that the target is far below the 52-week high.

GT Advanced Technologies Inc. (NASDAQ: GTAT) traded at $4.02 and has a market value of around $485 million. The consensus target price from Thomson Reuters is $8.82 and the 52-week range is $4.00-$17.50. Three months ago the target price was $12.70. GT does not pay a dividend. The implied upside to the consensus target is 120%, and we note again that the target is far below the 52-week high.

First Solar Inc. (NASDAQ: FSLR) traded at $14.42 and has a market value of around $1.2 billion. The consensus target price from Thomson Reuters is $25.29 and the 52-week range is $13.21-$142.22. Three months ago the target price was $43.55. First Solar does not pay a dividend. The implied upside to the consensus target is 75%, and we note again that the target is far below the 52-week high.

SunPower Corp. (NASDAQ: SPWR) traded at $5.23 and has a market value of around $615 million. The consensus target price from Thomson Reuters is $8.79 and the 52-week range is $4.94-$23.36. Three months ago the target price was $9.70. SunPower does not pay a dividend. The implied upside to the consensus target is 68%, and we note again that the target is far below the 52-week high.

Suntech Power Holdings Co. Ltd. (NYSE: STP) traded at $1.83 and has a market value of around $331 million. The consensus target price from Thomson Reuters is $2.39 and the 52-week range is $1.70-$8.50. Three months ago the target price was $2.57. Suntech does not pay a dividend. The implied upside to the consensus target is 31%, and we note again that the target is far below the 52-week high.

Trina Solar Ltd. (NYSE: TSL) traded at $5.83 and has a market value of around $408 million. The consensus target price from Thomson Reuters is $7.87 and the 52-week range is $5.01-$23.64. Three months ago the target price was $9.15. Trina Solar does not pay a dividend. The implied upside to the consensus target is 35%, and we note again that the target is far below the 52-week high.

LDK Solar Co. Ltd. (NYSE: LDK) traded at $2.53 and has a market value of around $347 million. The consensus target price from Thomson Reuters is $2.27 and the 52-week range is $2.54-$7.75. Three months ago the target price was $3.25. LDK does not pay a dividend. The current price is above the consensus target, but still below the target price in February and well below the 52-week high.

JA Solar Holdings Co. Ltd. (NASDAQ: JASO) traded at $0.95 and has a market value of around $192 million. The consensus target price from Thomson Reuters is $1.85 and the 52-week range is $0.89-$6.15. Three months ago the target price was $2.25. JA Solar does not pay a dividend. The implied upside to the consensus target is 95%, and we note again that the target is far below the 52-week high.

ReneSola Ltd. (NYSE: SOL) traded at $1.35 and has a market value of around $116 million. The consensus target price from Thomson Reuters is $1.98 and the 52-week range is $1.32-$7.65. Three months ago the target price is not available. ReneSola does not pay a dividend. The implied upside to the consensus target is 47%, and we note again that the target is far below the 52-week high.

The only dividend-paying company out of this group is Applied Materials — that fact alone makes it a better bet than any of the rest. The company thinks it will grow sales 16% in 2012, but that will probably include another decline in sales of solar cell-making equipment. Revenue from Applied’s solar business fell -62% in 2011, and there is simply no prospect of a turnaround of any size in the solar business this year. Applied’s potential upside of 30% is not unrealistic from a mathematical point of view, but from a practical point of view that upside is probably too high by at least half.

Of the panel makers, the best any can hope for is that the situation doesn’t get any worse. We noted yesterday that Maxim Group raised its rating on Trina Solar from ‘sell’ to ‘hold’. That’s known as “damning with faint praise.”

And based on the quarterly earnings reports we’ve seen so far, ReneSola offered the most hope, saying that it plans to reach a cost of $0.70/watt in the second quarter, which might bring its margins back out of negative territory. The operative word is ‘might’.

The apparent value in the solar sector represents a gamble more than anything else. The industry is too different now from what it was two years ago to make any sort of historical argument for one company over another. But one thing is certain — solar is no longer a growth sector, it is a contracting sector. What looks like a value investment today is really a survival bet.

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Paul Ausick

Chinese solar makers Suntech Power Holdings Co. Ltd. (NYSE: STP) and Trina Solar Ltd. (NYSE: TSL) both announced results for their first quarters. Suntech managed to beat revenue expectations, posting sales of $409.5 million versus a consensus estimate of $406 million. But the total reflects a decline of -34.9% sequentially and 53.3% year-over-year. The company posted an EPS loss of -$0.74 compared with an estimate of -$0.50. Gross margins fell to just 0.6%, down from 9.9% in the fourth quarter of 2011 and 20.8% in the same period a year ago.

Trina did even more poorly. Revenues totaled $350 million versus a consensus estimate of $398.5 million and the loss per ADR totaled -$0.42 compared with an estimated loss of -$0.29. Gross margins came in at 13.3%, but the company’s operating margin fell to -11.4%, somewhat better than the operating margin of -14.4% in the fourth quarter of 2011.

Profits and margins for both companies include reserves taken to pay the anti-dumping duties recently approved the US Department of Commerce.

Of the solar makers, only Renesola Ltd. (NYSE: SOL) put up solid enough numbers for the first quarter to enjoy any kind of bump in share price. First Solar Inc. (NASDAQ: FSLR) posted a surprise EPS loss for the first quarter and SunPower Corp. (NASDAQ: SPWR) missed on revenues while coming in slightly ahead of EPS estimates. Chinese solar maker LDK Solar Co. Ltd. (NYSE: LDK) posted horrible results in its fourth quarter and expected results for the first quarter don’t look good either. Neither do estimates for JA Solar Holdings Co. Ltd. (NASDAQ: JASO) or Yingli Green Energy Holding Co. Ltd. (NYSE: YGE).

Suntech said it expects shipments to increase by 20% in the second quarter and gross margins to improve to 3%-6%. The company maintained its full-year shipment guidance of 2,100-2,500 megawatts.

Trina forecast shipment growth of about 31%-37% in the second quarter and gross margins of around 10%. For the full year the company expects to ship 2,000-2,100 megawatts.

Shares of Suntech have fallen about -2.5% by early afternoon today to $1.93 in a 52-week range of $1.70-$8.50. Trina’s shares are up 0.75% at $5.37 in a 52-week range of $5.20-$23.64.

Paul Ausick

First Solar Inc. (NASDAQ: FSLR) has been a total disaster, but short covering and bottom-fishing traders are snapping up shares.  After an all-time low of $13.75 this week, shares recovered to $14.92 on Thursday on the most active volume in two weeks (over 10 million shares).  Shares are indicated above $15.00 for Friday but we will see if this can hold. SunPower Corporation (NASDAQ: SPWR) recovered more than 10% on Thursday after a recent low of $4.94 with a close of $5.59 on over 4 million shares (most since Feb 17 at 7.3 million shares).

One potential problem to consider is that the tariffs could inadvertently impact some of the U.S. producers of solar panels as well.  The issue is that many components involved in making these PV panels also come from China.

Suntech Power Holdings Co. Ltd. (NYSE: STP) is a loser in this tariff effort.  Shares were at $2.60 just last Friday and the ADRs closed down at $2.13 on Thursday.  Shares are indicated higher on Friday but we will have to see how it pans out.  Trina Solar Limited (NYSE: TSL) is another loser with its ADR closing at $6.08 Thursday after having been at $7.50 just last Friday.

LDK Solar Co., Ltd. (NYSE: LDK) closed lower on Thursday at $2.91, but this is actually in-line with prices just last Friday and its 52-week range is $2.54 to $7.90.

GT Advanced Technologies Inc. (NASDAQ: GTAT) is often lost in the shuffle as it is on the technology side of the solar PV process.  It is also in LED technology.  Shares closed down at $4.49 on Thursday against a 52-week low of $4.24.  The 12 million shares traded on Thursday was the highest trading volume seen since last August.

If you really want to know what the trend is on a global-solar basis, just follow the Guggenheim Solar (AMEX: TAN).  This ETF closed down yet again at $18.35 on Thursday after closing at $19.21 the prior day and against a $20.61 close last Friday.

Unfortunately, the solar sector has its share of woes and pain.  Austerity, expiration of tax credits, a lack of cost-effectiveness, and other issues are going to be present for the time being whether tariffs exist or not.

JON C. OGG

News on Wednesday night showed that Chief Financial Officer Mark Murphy is leaving the company to rejoin a position at Praxair.  The news is on the heels of previous report showing a major loss due to poor solar materials sales. Does the notion that MEMC named Brian Wuebbels as executive vice president and CFO help?  Not really, even if Murphy will act as a “consultant” during the transition period.

Losing a CFO is not as bad as losing a founder and not as bad as losing a CEO, but the problem with losing a CFO is that Wall Street assumes that the CFO has lost faith in the future of the company. In some cases, it could mean something far worse.  With MEMC shares having fallen from over $90 during teh solar boom down to under $2.00 it is easy to wonder if things are going from just awful to even worse.

So, here is where we cannot help but wonder about MEMC’s future.  Thomson Reuters expects a loss of -$0.10 EPS in 2012 on sales of $2.6 billion.  But almost magically in 2013 the consensus is back up to $0.45 EPS on $2.83 billion in sales.  The revenues in 2011 were $2.715 billion, in 2010 they were $2.239 billion, and 2009 revenues were $1.163 billion.  The problem is that sales in the solar sector are getting harder and harder to come by and the solar sector is in total disarray.  The company’s latest loss and decline in revenues also reflected weak demand in the semiconductor wafer markets.  Yep, MEMC is facing a war on two fronts and its non-GAAP margins are getting squeezed.

The sector leaders are looking like hell frozen over.  First Solar Inc. (NASDAQ: FSLR) is effectively at all-time lows if you discount a small 2% gain today.  SunPower Corporation (NASDAQ: SPWR) is down over 75% since Total SA (NYSE: TOT) bought the controlling interest.

If the company was on the verge of a great turnaround then the CFO would seemingly not have pulled the ripcord on the way down here.  The company has what looks to be ample cash reserves to fund operations, but it also has significant amounts of long-term debt. This situation just feels like it is one which is going from awful to far worse.

MEMC is in serious trouble.  Still, it is one of these outfits that has enough cash to fund operations for probably quite some time, but its core businesses are challenged and the company has so far been unable to get its operating costs in order.  It has also forecast a weaker demand for semiconductor materials in 2012 as well as a lower price per watt in solar.  Our big concern is that the projections may have been based entirely upon the CFO forecasts just a week or so ago, and his departure would bring even the lower guidance into question.

For whatever this is worth, Wunderlich Securities cut its target down to $1.00 after it maintained a SELL rating after the most recent earnings.

It is too soon to declare that MEMC will be a total implosion.  It is even possible that there could be a turnaround of major proportion coming here.  Unfortunately, that does not appear to be the case any time in the immediate future.

So you tell me in a poll, no “I don’t know” answers allowed…

JON C. OGG

MEMC named Brian Wuebbels as its new CFO. Wuebbels has been with MEMC in various roles since 2007. His previous experience came at Honeywell International Inc. (NYSE: HON) and General Electric Co. (NYSE: GE).

Investors are treating the switch as yet another signal that MEMC is a sinking ship. Shares are off more than -18%, at $1.74 after posting a new 52-week low of $1.67 earlier. The previous range was $2.07-$10.64. After the announcement last night shares only fell by a penny. That situation changed fast this morning.

Paul Ausick

When the company reported fourth quarter earnings in March, it set expectations for the first quarter fairly low: shipments of 400-420 megawatts of modules and wafers and revenues of $180-$190 million. Now it might be that Renesola was managing expectations, but based on today’s results and the fourth quarter’s report, the company appears to have won its first battle with managing costs. That solution has so far eluded First Solar Inc. (NASDAQ: FSLR), SunPower Corp. (NASDAQ: SPWR), LDK Solar Co. Ltd. (NYSE: LDK), Suntech Power Holdings Co. Ltd. (NYSE: STP), Yingli Green Energy Holding Co. Ltd. (NYSE: YGE), and JA Solar Holdings Co. Ltd. (NASDAQ: JASO). Jinkosolar Holding Co. Ltd. (NYSE: JKS) is scheduled to report earnings later today and analysts expect an EPS loss of -$1.07 on revenue of just $158.9 million, about half the revenue of a year ago.

In March, Renesola’s CEO said this about his company’s cost structure:

Although we achieved our year-end cost-reduction targets, which placed our cost structure among the lowest in the industry, it was not enough to offset extremely low solar wafer and module prices.

In the first quarter the company’s module manufacturing cost fell to $0.74/watt and Renesola expects to lower that to $0.70/watt in the second quarter. Half the cost savings will come from lower wafer costs and the rest from lower pricing for polysilicon. The company is vertically integrated and makes its own wafers and polysilicon, which helps keep its costs down.

For the first quarter Renesola had positive gross margin of 9% on its solar modules while its overall gross margin was negative, -3.8%. That’s not good, but it’s a lot better than the negative gross margin of -28.1% the company posted in the fourth quarter. In the first quarter of 2011 gross margin rang in at 21%. Those were the days.

Shares in Renesola are up nearly 12% in pre-market trading, at $2.00, in a 52-week range of $1.45-$8.83.

Paul Ausick

Solar panel makers like First Solar Inc. (NASDAQ: FSLR), SunPower Corp. (NASDAQ: SPWR), Suntech Power Holdings Co. Ltd. (NYSE: STP), and Yingli Green Energy Holdings Co. Ltd. (NYSE: YGE) have watched panel prices erode about -50% in the last year. Polysilicon prices have dropped -70% and companies like MEMC simply can’t reduce costs fast enough to keep up with collapsing demand and a race to the bottom on polysilicon prices.

MEMC’s adjusted gross margins for the quarter were down to 10% from 11.6% in the previous quarter and full year 2011 margin of 18%. Perhaps the worst news of all for the company is that its SunEdison division which designs and installs solar PV systems installed new projects totalling 49 megawatts in the first quarter, down -55% sequentially and -11% year-over-year.

The company also forecast somewhat weak revenue growth for the second quarter and a revenue drop for the full fiscal year. The company said its sales volume for the full year would be more than 400 megawatts and that second quarter volume would be 130-170 megawatts. Taking a midpoint of 150 megawatts and first quarter sales of just 47 megawatts, that estimate indicates expected growth in the second half of the year. MEMC better hope so.

Shares of MEMC are down -24% today, at $2.47 after posting a new 52-week low of $2.46 earlier. The prior 52-week range was $3.20-$11.31.

Paul Ausick

Tesla, which missed both top- and bottom-line estimates last night soothed shareholders with word that the company’s new sedan, the Model S, will ship in June, a month ahead of schedule. The company claims that more than 10,000 customers have ordered the new $70,000 sedan. Tesla has sold about 2,250 of the 2,500 Roadsters it has built since 2008. By way of comparison, GM sold nearly 2,300 Chevy Volts in the month of March alone.

Despite the tiny sales numbers and a larger-than-expected EPS loss of -$0.76 last quarter, Tesla shares are rising on the news about the Model S and a small bump to revenue guidance for the rest of the year. Revenue totaled $30.2 million, below the consensus estimate of $32 million and down from $49 million in the same period last year.

For 2012 the company guided revenue to $560-$600 million, moving the low end up $10 million from a previous estimate. That’s a big quarterly hike based on first quarter numbers.

Investors appear to have great faith in Tesla’s ability to fill a high-end niche for EVs because the shares are up 11.6% today, at $33.55 in a 52-week range of $21.50-$39.95.

Paul Ausick

Westinghouse Solar is a designer and manufacturer of integrated rooftop solar power systems, and CBD is an Australian diversified renewable energy company.  Margaret Randazzo is currently the CFO of Westinghouse Solar and she was also appointed Interim CEO as former CEO Barry Cinnamon is leaving the company.  CBD anticipates that it will shift to a U.S. listing upon the closing of the merger and it plans to list its common shares on that NASDAQ.

The press release noted that the initial meetings about a merger took place in December of 2011.  It is now May and we cannot help but to wonder whether or not other solar companies have considered mergers.  Here are two of the easy observations in the broader solar sector:

First Solar, Inc. (NASDAQ: FSLR) is now at all-time lows and has remained profitable so far despite shares being down 90% from last year’s highs.  It is now only worth about $1.4 billion and it would be considered a busted IPO if the move happened faster.

SunPower Corporation (NASDAQ: SPWR) is already majority-owned by Total SA (NYSE: TOT) and it trades at about 75% under where Total took its stake of almost $1.4 billion.  The entire market cap including the majority stake held by Total is only $628 million.

LDK Solar Co., Ltd. (NYSE: LDK) is in China and now only worth $360 million.  There have been takeover rumors before in this name but the China base and woes in China right now probably make it difficult for a non-Chinese player to acquire the company.

MEMC Electronic Materials Inc. (NYSE: WFR) is a name which used to come up regularly in the takeover rumor category, although it has been so battered that getting approval might be impossible after 95% losses from the peak.  It is now worth only about $764 million in market cap.

We would note that Energy Conversion Devices was also always a ‘merger rumor name’ in solar but it went bankrupt.  There is no assurance that other solar mergers are on the horizon, but these companies might want to start thinking about stock mergers which could still give holders upside if the combined companies turn around and thrive again.

To show just how bad things are, the Guggenheim Solar (AMEX: TAN) ETF trades at $21.09 and it has lost one-third of its value since its reverse split.

Westinghouse shares closed at $0.40 and its 52-week trading range is $0.26 to $2.75.  The market value was only $6.66 million as of Tuesday’s close.

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JON C. OGG

Shares of First Solar are down another -6% today, currently trading at $16.61, after putting up (down?) a new 52-week low of $16.51 earlier. The other large US solar panel maker, SunPower Corp. (NASDAQ: SPWR) is down -5.5% at $5.50 in a range of $4.94-$23.36. Even China’s Yingli Green Energy Holding Co. Ltd. (NYSE: YGE) is down about -3.6%, and that’s after the news that the company completed a $238 million bond sale at yields as low as 5.78%.

Compare Yingli’s yield to Germany’s SolarWorld AG, the country’s largest solar panel maker, which saw rates on its 5-year notes rise to 49.4% last week. And the government of Angela Merkel wants to cut the country’s subsidies for solar installations even more in a move that has drawn opposition from political foes and even some allies.

Four of Germany’s solar panel makers have filed for bankruptcy since December. This is leading to job losses in an industry that had been adding jobs to the country’s economy for years. First Solar will close its plant in Germany and eliminate 1,200 jobs. Q-Cells, the largest of the German countries to file for bankruptcy, could be forced to fire as many as 1,300 German workers.

Merkel and her government have taken a hard line on the subsidy cuts, insisting that the subsidies are driving up the cost of electricity to consumers. The government’s environment minister said last month that the industry will just have to learn to live with lower subsidies and he believes that employment in renewable energy will continue to rise. He told Bloomberg Businessweek:

The success story in the job sector continued last year, and everything points to that it will continue this year. If enormous overcapacity exists in the solar sector, this will lead to adjustments that we can’t and shouldn’t stop with excessive subsidies.

Germany’s state governments and representatives to the federal government don’t agree, though. The governor of one state — and a member of Merkel’s political party — has said that the planned subsidy cuts “are detrimental to the many companies producing in our region and we want a fundamental change.”

This is the austerity vs. growth argument writ small. If Merkel is getting pushback from her own party on an austerity measure, it’s not so hard to believe that she’ll begin to feel the pressure soon to be coming from France and maybe even Greece.

The solar industry could be a bellwether for Germany as the steep cuts in jobs could begin to pinch local and regional governments. The country has already lost many of its manufacturers and is not really an exporter of solar panels. And exports have been the key to Germany’s ability to withstand the financial woes that have hit other Eurozone countries.

None of this matters to First Solar, though, and probably doesn’t matter much to SunPower. But Yingli, a low-cost, high-volume manufacturer, that looks like it can weather the current storm in the solar industry could be a longer term winner.

Paul Ausick