The alternative energy industry is going through a major transition, which has left a number of companies in bankruptcy. Most recently, Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP), formerly the largest solar manufacturer in the world, defaulted on loans and was forced into insolvency.
GT Advanced Technologies Inc (NASDAQ:GTAT)
A year ago, I was very bullish on the businesses GT Advanced Technologies Inc (NASDAQ:GTAT) operates in, and optimistic about the future of the company. But since then there’s been a continuation of falling prices in end markets, and equipment orders aren’t coming through as quickly as investors once hoped.
The HiCz System was supposed to change the game for solar, bringing cell efficiency from 18.5% to over 22%, a huge improvement for the industry. But its commercial launch has been pushed back to 2014 and it appears that order intake is slower than expected.
Sapphire technology started with a bang for GTAT and could be used for everything from lighting to cell phone screens, but similar cost pressures as those in the solar industry have hurt orders. During the second half of 2013 the industry is expected to pick up as new applications begin to gain market adoption.
The company fell to a $159.4 million loss in Q4 2012; with $297 million in debt versus $418 million in cash the company can’t afford to have many more quarters like that. The problem is that management expects to lose money on a GAAP basis again this year, despite a $1.2 billion backlog.
Will GTAT survive? I think so because the company has a decent balance sheet and should have long-term growth in the markets it serves. But this isn’t a bet I’d make until we see demand and cash flow pick up, something for which we’ve been waiting a long time.
Power One Inc (NASDAQ:PWER)
The inverter market is supposed to be hot, but Power One Inc (NASDAQ:PWER) can’t seem to gain any traction on the stock market. Micro-inverter competitor Enphase Energy Inc (NASDAQ:ENPH) has actually been the hotter stock recently, while Power-One bounces around near 52-week lows.
What’s maddening for Power-One investors is that the company makes money (unlike Enphase) and has a flawless balance sheet (unlike Enphase).
PWER Net Income TTM data by YCharts
Investors are struggling with the direction of results, both on the top and bottom lines. A great balance sheet is only a strength until you start burning cash with losses, something we’ve seen before in alternative energy. If declining sales continue that’s where Power-One is headed.
In the end, Power-One is in a growing business, it’s making a profit, and it’s generating free cash flow. I’m not confident enough to say Power-One will outperform the market but I think this is one company that will survive for years to come.
First Solar, Inc. (NASDAQ:FSLR)
The story of First Solar, Inc. (NASDAQ:FSLR) over the past decade encapsulates that of the entire solar industry. There was euphoria in the mid-2000s when European countries handed out generous subsidies and there was more than enough demand for all the panels First Solar could make. But as the decade wore on, China began building a solar behemoth, driven by easy money from state-run banks. The solar bubble burst and companies began dropping like flies across the industry. At the same time, First Solar’s stock dropped like a rock.
FSLR Total Return Price data by YCharts
So far, the company has survived the worst, but the real challenge lies ahead. First Solar, Inc. (NASDAQ:FSLR)’s thin-film technology is falling behind its rivals’, particularly those making high-efficiency panels like SunPower Corporation (NASDAQ:SPWR). First Solar has virtually no share in the steady growing residential market, also dominated by SunPower Corporation (NASDAQ:SPWR), relying instead on giant projects to generate revenue.
The problem is, these huge projects are drying up. Utilities in the U.S. are getting enough renewable energy from distributed solar (residential and commercial) and don’t have to sign up for huge projects to meet mandates anymore. Worldwide, First Solar is having some success signing big deals, but it’s not enough to fill its backlog.
TheFirst Solar, Inc. (NASDAQ:FSLR) we see in 10 years will look nothing like the First Solar, Inc. (NASDAQ:FSLR) we see today. The company may spin off its project-building unit into a REIT or an MLP, or the company may just shut down manufacturing if it can’t improve efficiency.
First Solar is one company I’m confident won’t survive without major strategic changes. The company is setting up to make that happen but investors shouldn’t buy into the future until they know how this plays out.
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